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Waterloo Capital Commentary and Outlooks
Investors have long turned to public fixed income investments for their traditional attributes of income generation, capital preservation, and safety during volatile markets. However, we now find ourselves navigating through an exceptional chapter of the bond market’s story. The unprecedented phenomenon of three consecutive years of negative total returns challenges our conventional understanding, prompting a critical examination of where we...more
The third quarter of 2023 saw the euphoric optimism that propelled the “Magnificent Seven” stocks and broad indices higher, abruptly give way to renewed concerns regarding the Federal Reserve's policy action, or future inaction. The initial vigor of July, extending the strong uptrend from the first half of the year, gave way to a notable shift in sentiment during August and September. Historically known for seasonal weakness, these months...more
The first half of 2023 has concluded following a second quarter that saw concern on the direction of markets and the economy giving way to resilient data and optimistic sentiment. Throughout the quarter, investors received earnings reports, economic indicators, and banking sector news displaying that the worst-case scenario of an imminent, banking led recession in the US was not in the cards. Instead, the economy has maintained a steady...more
“A good golfer has the determination to win and the patience to wait for the breaks.”
- Gary Playermore
In the midst of recession fears, a banking crisis, and historically high interest rates, the S&P 500 is up 7% YTD. Meanwhile the corresponding equal weighted index of the same 500 companies is roughly flat. What is driving this intra-index divergence, is it sustainable, and where could we go from here?more
Markets, and more importantly, investor expectations, fluctuated drastically throughout the first three months of 2023. Beaten down areas came out of the gates quickly as they forcefully rallied on optimism that global central banks would soon halt rates. This soft-landing hope quickly sputtered as markets faced a banking crisis and thoughts of tighter financial conditions leading to a larger than expected slowdown in the global economy...more
The failure of Silicon Valley Bank was caused by a run on the bank. The company was not, at least until clients began rushing for the exits, remotely insolvent. But banking is an enterprise that relies as much on confidence as it does liquidity — and if that runs out, the game is over.more
Linear regression is a simple statistical method most of us are familiar with if we have ever taken an introductory course in statistics. Linear regression is used to model the relationship between a dependent variable and an independent variable. Suppose you are studying the relationship between the number of hours studied (independent variable) and the score on a math test (dependent variable) for a group of students. In this example, the...more