🎙️ Winter Is Coming

It’s that time of year, and if you’re still looking to give someone special in your life a gift, why not give them something that will actually help them? 🎁

That is, why not empower them with the knowledge and wisdom to make great financial decisions over a lifetime?

We’ve got ya covered. For the next 24 hours, if you buy our How To Get Started With Stocks course, we’ll send you a 100% off discount code to share with someone in your life. “BOGO,” as they say.

💭 For the price of one course, not only will you get savvier about investing, but you can help someone you care about get smarter.

*(If you already bought the course and want to gift access to someone else, too — just reply to this email and let us know, and we’ll grandfather you in.)

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the three biggest stories in markets:

• An M&A winter arrives for investment bankers

• How the Fed’s policies have backfired

• The housing slowdown is rippling through the economy

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

❄️ An M&A Winter Arrives for Investment Bankers

Winter is coming. December 21st is the Winter Solstice, but for investment bankers, private equity firms, and corporate decision-makers, winter is already here (and has been for a while.)

2023 was the slowest year for mergers and acquisitions — M&A — in a decade, falling short of $3 trillion worth of deals globally for the first time since 2013.

36% less. That’s the dropoff in spending from private equity firms on acquisitions. Yes, you can chalk that up to higher interest rates, making financing for deals costlier.

• Price has also been a sticking point, though, with companies clinging to pandemic-era valuations that buyers think no longer match reality.

The losers? Investment bankers. Bloomberg reports they’re “facing a bleak bonus season” since their work largely depends on collecting fees for underwriting M&A deals.

• Expect a lot of finance bros to get laid off if things don’t improve in 2024.

JPMorgan’s co-head of M&A for North America compared 2023 to the 2001 dot-com crash — a miserable episode in financial history as markets reconciled with reality following a bubble born from premature exuberance about the internet.

• He added, “It has just been a lot harder to get things done this year…People aren’t inclined to look past challenging issues to get deals through.”

Why it matters:

Some hope: A spate of deals in the energy space, namely Exxon’s $60 billion purchase of Pioneer Natural Resources and Chevron’s $53 billion acquisition of Hess, stoked the fire, bringing back some optimism on dealmaking.

• But as one law firm partner who advises big Wall Street deals put it, “I feel differently about the market every few weeks.”

Regulatory roadblocks: Antitrust enforcement and preventing non-competitive corporate consolidation has become a core priority for regulators globally, led by the U.S., EU, and UK.

Just yesterday, Adobe announced that its $20 billion acquisition of Figma was dead, citing pressure from EU & UK regulators over whether the deal would stifle competition in the product-design software industry — Adobe must pay a $1 billion fee to Figma for terminating it.

Meta has felt regulators’ sting, too. The UK forced it to sell Giphy nearly three years after first agreeing to acquire the company for over $300 million.

• And stateside, the U.S.’s Federal Trade Commission, alongside the Justice Department, have raised the most challenges to corporate mergers since 1976, when the government first mandated pre-merger reviews.
  

• Under U.S. law, companies valued at more than $111 million must notify the FTC and DOJ and wait 30 days for review before closing a deal — regulators are beating back those deals at the fastest pace in decades.

Read more

TOGETHER WITH MORNING DOWNLOAD

Be a better investor

55,000+ investors trust Morning Download for the latest market insights and investment tips.

It's a free, daily email that summarizes everything that's going on in the stock market, crypto world, and economy.

🤔 How the Fed has Impacted the U.S. Housing Market

Yesterday, we wrote about how housing prices could help slow increases in the Consumer Price Index (CPI) — the most commonly used measure for inflation.

Per Freddie Mac, the government-sponsored mortgage behemoth, 30-year fixed mortgage rates are below 7% again. That would've sounded very expensive for much of 2022, let alone 2021 & 2020.

• But after these rates hit almost 8% in October, the decline is welcome news to many prospective homebuyers, maybe even enough to convince some to pull the trigger.

One of the many ironic, complicating realities of the Fed’s sweeping inflation fight pushing interest rates up nationwide is that, although costlier mortgages suppress demand for homes, it also discourages homebuilders from ramping up construction to address America’s widely acknowledged housing shortage (see below.)

Said differently, you can smother demand, but if new housing projects stall out, too, then you’ll still have a structural housing shortfall, leaving little room for a meaningful correction.

• As Bloomberg’s Joe Weisenthal says, “it's not a great dynamic that when the Fed is in inflation-fighting mode, it impairs the creation of a hugely important component of everyone's consumption basket (home prices.) Basically, the exact opposite of what you'd — in theory — like to see.”

Why it matters:

The Fed-induced housing slowdown has implications beyond home prices.

Second-order effects: Employment at furniture & home-furnishing retailers, building-material & garden-equipment suppliers, and electronics & appliance retailers is down 3.62%, 3.97%, and 5.52%, respectively, since 2022.

• While it seemed like everyone was becoming a real estate agent during the pandemic housing boom, job growth in the real estate sector has also slowed dramatically, from a year-over-year peak of 5.65% in 2021 to 1.2% today.
  

• New housing construction, as reflected by residential building permits, a proxy for projects in the pipeline, was down roughly 30% in January from a year earlier. Momentum has picked up throughout 2023, but private residential construction spending is still well below the 2022 peak.

Read more

MORE HEADLINES

🌋 Volcano erupts in Iceland

🫣 Hackers steal data of nearly 36 million Xfinity customers

📚 Time’s 25 most anticipated books of 2024

💬 Researchers find that AI models struggle to analyze Securities and Exchange Commission filings

❌ The world’s biggest shipping companies are avoiding the Suez Canal

👉 Where the battle to dominate AI may be won

🏠 Housing Slowdown Ripples Through the Economy

More housing, folks. After all, we need to live somewhere. So let’s dive further into how Fed rate increases have driven a dip in spending and job growth in housing-tied sectors.

Broadly, higher rates have driven a stalemate in most areas of the U.S., where few people locked into low-interest rates want to sell their homes. But what gets overlooked is the spillover, or ripple effects, of such a standstill – from the local hardware stores to furniture outlets and construction companies. 

Cautious on furnishings: Once you buy a new house, you furnish it. Some people remodel or spruce up their place, meaning furniture spending also falls when existing home sales slide. 

• Total spending on furniture and at-home-improvement stores like Home Depot, Lowe’s, and your favorite local hardware store has dropped compared with 2022.
  

• Americans are showing “a bit more caution with respect to larger projects,” Home Depot’s CFO noted. The company has reported four straight quarters of comparable-store declines after a great run during the pandemic.

Less need for workers: When we reduce spending on housing, we don’t need as many workers in industries like retailers for furniture and electronics. 

• As mentioned in the above story, since peaking in early 2022, employment in those sectors has steadily fallen for nearly two years.
  

• Nationally, real estate brokers, property managers, and agents have all seen decreasing demand for their work, with some exceptions.
  

• The trickle effects extend to landscaping and other service jobs related to housing.
  

• As a senior economist at Jefferies commented, “Services related to housing are definitely in a recession.”

The bottom line(s): All this comes after existing home sales dropped to a 13-year low in October. The trend has taken its toll on workers and businesses that rely on the housing market. 

• What’s to come? Well, it’s unlikely the housing market will flip a switch on Jan. 1. Sales of existing homes are “likely to remain depressed throughout 2024 and be a downer for people selling goods and services related to that,” remarked another senior economist. 

Read more

RECOMMENDED READING

 When you're updating your portfolio, don't forget about your health! Thrive25 is your trusted, personal guide on all things health and longevity 💪

It's an easy, fun read with no BS that delivers real-world actions we can do right now to live better today and for years to come. 

When to expect it: 3x per week - every Tuesday, Thursday & Saturday morning.

QUICK POLL

Yesterday, we asked: Do you think FTX can ever emerge from bankruptcy and operate as a profitable crypto exchange?

—Wrote one reader: “Many companies in the S&P 500 have done atrocities in the past and have cleaned their reputation. FTX will be no different.”

—Said another reader: “I hope the hell not it needs to be buried away forever!!”

See you next time!

That's it for today on We Study Markets!

Enjoy reading this newsletter? Forward it to a friend.

Was this newsletter forwarded to you? Sign up here.

Use the promo code STOCKS15 at checkout for 15% off our popular course “How To Get Started With Stocks.”

Advertise with us.

Follow us on Twitter.

Keep an eye on your inbox for our newsletters on weekdays around 6pm EST and on weekends. If you have any feedback for us, simply respond to this email.

You can also leave your comments/suggestions/feedback anonymously here.