Weekly Update: Macro All The Way Down
A few highlights from the week of 8/29
It’s been a tough few weeks for public SaaS companies. The WCLD cloud index plunged 5.77% this past week, closing at $28.10. It seems to be headed back towards its 52-week low from mid-June of $25.66.
What’s going on?
Interest rate expectations: 10-year treasury yields surged this week. That’s a Bat-Signal of “Risk-OFF!!!” for institutional investors
Interest rate expectations
You might have noticed #1 and #2 are the same.
That’s because we are in a moment where variations in macro factors (such as interest rates) are dominating price movements in public growth stocks.
Here is a chart of WCLD vs IEF (a bond market ETF for 7-10 year treasuries):
Notice the tight correlation between the two lines, representing the nearly parallel performance of the SaaS ETF and the bond ETF since the beginning of the year.
It’s macro all the way down, folks.
A crystal ball for interest rates (macro) is going to be much more lucrative at this moment than a crystal ball for individual company performance (micro).
An astute SaaS observer might point out that Okta & Hashicorp both plummeted 20-30% this past week, hence an example of micro factors at play.
Except those two got whacked because they mentioned they are seeing early signs of recession-induced slow down, a function of interest rates.
It’s macro all the way down, folks.
I think the fun place to play these days in SaaS is at the earliest stages of VC.
Maybe, just maybe, seed stage SaaS investing performance will be more a function of micro (picking the right founders) than macro.
Of course, I’m not alone in thinking this: the seed stage is BY FAR the most active part of an otherwise frigid venture capital market.
Podcast recommendation of the week:
Robert Smith, the most successful software investor ever, recently gave a fascinating interview in Invest Like The Best.
It’s dripping with wisdom on software investing and worth checking out.
Blog post recommendation from this week:
Elad Gil had a wonderful post on the revolutionary moment we are experiencing in AI.
I highly recommend everyone to try some of the new tools based on AI (more specifically, LLM’s) covered in the blog post. For example, AI-based tools for writing include Jasper or Copy.ai and tools for drawing include MidJourney (which is massively popular in Discord) or Stable Diffusion (an open source model based on Dall-E.
They are truly astonishing examples of the power of cheap AI now available at our fingertips.