Pessimism As A Service (Or What Market Signals Are Worrying Us)

Morning Markets: A short list of things to worry you.

Is the economy strong or is it weak? Are stocks overpriced or are they accurately valued to reflect future growth? Are startups raising too much money or is the market intelligently funding their potential?

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Whether venture activity will persist at historically high levels is a critical question for readers of this publication. But what drives the answer to that question often stems from the public market and the negative or positive sentiment it spills into the private market over time.

It works like this: If the stock market falls, or the economy stalls, startup fundraising will take a hit. That in mind, let’s talk about some worrying things in the market.

Worries

We often cover positive indicators here at Crunchbase News: Successful IPOs, big funding rounds, sector-based trends that in recent years have mostly pointed up, and new fund formation. Bullish, bullish, bullish, and bullish.

WeWork’s impending IPO reminded me of the importance of market timing. If you go public when times are good, you have a better chance of defending your private valuation—especially if it is historically high and doubted like WeWork. (Note that the bears may be wrong, of course, and we may find a pleasant surprise in WeWork’s S-1. Perhaps.) And there are hundreds of unicorns that want to exit before the market turns.

When a correction will come is hard to guess. I don’t know, and you probably don’t either. But here are some jitters from the market that are worth paying attention to as you consider your own set of investing risks:

• 2019 Q2 US GDP growth was weak.
• 2018 U.S. GDP growth just got revised sharply lower.
• The U.S. federal deficit is spiking.
• U.S. car sales are floundering.
• Some hot tech companies are taking a whacking this earnings cycle.
• Leveraged loans are looking pretty bad.
• Home equity delinquencies are rising.
• Which is bad, because consumer spending is holding up the current U.S. expansion.

And here’s more of the same flavor from abroad:

• German debt yield is yikes-level negative.
• China’s economy continues to slow.
• China’s debt issues remain.
• China’s return on capital over time has fallen sharply.
• China’s venture market has contracted.
• EU economic growth is anemic.

And so on. You can write your own list easily of course, but the above is a workable set of starting points.

What matters is that there are growing cracks in the armor of this expansion. That doesn’t mean that we’re about to see a correction; but it does mean when it does come, we’ll know where to look for the catalyst.

Properly sad yet? Good. Now let’s put on our Silicon Valley sunglasses and take the opposite perspective.

Cheerful Rejoinders

While the previously listed economic indicators should be cause for eventual concern, there are some current signals indicating that things are going to be just fine for a while yet:

• Vision Fund II is coming, and it’s worth more than $100 billion.
• Venture capitalists are raising funds at a good clip, putting more dollars in play for private companies.
• The current IPO cycle is strong. New offerings are seeing generally good returns.
• American corporate taxes are low. (See also: The rising deficit.)
• Even crypto has bounced back.

The struggle with watching an incredibly long expansion shuffle forward is holding reasonable doubt about its longevity while also realizing that forecasting when it will finally keel over is nigh-impossible.

After this little post, we’ll be back to mostly covering positive news as the private market generates far more public data points that point up than point down. But keep our worries in your mind. Eventually, they will matter.

Illustration: Li-Anne Dias.