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A major misconception about the market exposed in one chart



There’s one chart that could cast doubt on an age-old market adage.

As Treasury yields hover around multiyear highs with the 10-year inching toward the 3 percent mark, Oppenheimer technician Ari Wald says that history shows that rising rates are actually bullish for the market. A more common belief is that a rising rate environment bodes ill for stocks, but Wald says the technicals point to the opposite.

“The key point for us is that the direction of interest rates is equally, if not more important, than the level of interest rates,” he said Tuesday on CNBC’s “Trading Nation.” “So in general, we’re of the view that low and rising tends to be bullish for stocks and high and [falling rates] is what’s bearish.”

On a chart of the 10-year yield and the S&P 500 going back to 2000, Wald points out that since then falling interest rates have actually coincided with a drop in the market.

“If you look back through history, you’ll see that it was a downturn in interest rates that coincided with market tops in 2000 and 2007, as well as what we’ve been calling the top in risk in that 2014 to 2015 period,” he said. “So we see rising rates as growth coming back into the market.”

As a result, Wald believes that if investors are looking to put money to work, cyclical sectors like financials look to be a good bet right now. He cautions against bond proxies like utilities, telecom and real estate investment trusts as he believes they are going to “get hammered” in the current environment.

But Boris Schlossberg, managing director of FX strategy at BK Asset Management, says that from a fundamental standpoint, the rate rally could still pose a threat to stocks.

“We could be in a situation where rates are rising because of deficit financing, we could be in stagflation,” he said on “Trading Nation.” “That is in no way positive for stocks, so I remain highly dubious that rising rates are actually positive for stocks unless we have 3 to 4 percent growth.”

And according to Schlossberg, that high growth percentage looks unlikely. “If you have rising rates and not strong growth, then you have P/E compression and then you definitely have a decline in stocks,” he added.

On Wednesday, the 10-year yield was sitting at around 2.89 percent, hovering near highs unseen since January 2014.

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How Salesforce became Silicon Valley’s best late-stage tech investor



Marc Benioff, chairman and co-chief executive officer of Inc., speaks during the opening keynote of the 2019 DreamForce conference in San Francisco on Nov. 19, 2019. Inc.s annual software conference, where it introduces new products and discusses its commitment to social causes, was interrupted for the second year in a row by protests against the company’s work with the U.S. government.

David Paul Morris | Bloomberg | Getty Images

Last week, Salesforce reported a $2.17 billion annual gain from its investments in other tech companies. A few days later, the company’s venture arm extended its winning streak with another big exit.

In a boom time for large tech IPOs and software consolidation, Salesforce’s name is showing up everywhere. CEO Marc Benioff has proven that he’s not only a mega-dealmaker when it comes to buying high-priced cloud companies like Slack and Tableau, but has also turned Salesforce, with its hefty balance sheet, into a major force in Silicon Valley venture capital.

The latest windfall came on Wednesday, when cloud security vendor Okta said it’s acquiring smaller rival Auth0 for $6.5 billion, eight months after Salesforce Ventures led a $120 million investment at a $1.92 billion valuation. Salesforce more than tripled its money between July and March.

In 2020, two of Salesforce’s portfolio companies — nCino and Snowflake — soared after going public. They produced a combined $1.7 billion in investment gains, accounting for 78% of Salesforce’s total increase for the fiscal year that ended in January, according to the company’s fourth-quarter report on Feb. 25.

Salesforce also sold all of its 2.8 million Zoom shares last year, after more than tripling its money from investing $100 million in the video chat company’s 2019 IPO.

Those gains are providing a big boost to Salesforce’s bottom line. Of the company’s $4.38 in earnings per share for fiscal 2021, $1.75 came from mark-ups on strategic investments. Salesforce also reported on its balance sheet that its investments were valued at $3.91 billion as of January, up about 100% from a year earlier.

Benioff and Bret Taylor generate many investment ideas

Corporate venture capital used to come with a stigma. Big companies, in the eyes of many investors, had their own agenda, whether it was gaining market insight or product ideas from potential disruptors. Traditional venture firms often preferred to avoid investing alongside them.

While Salesforce does sometimes compete with portfolio companies, it’s better known for using its dominance in the sales software market to provide expanded distribution to the many business apps that need an audience. Salesforce benefits by offering its customers a wider assortment of cloud services, and start-ups win by getting meetings with potential clients who otherwise may never take their call.

John Somorjai, who runs Salesforce Ventures and leads corporate development companywide, said his group’s pitch has to be increasingly compelling because competition for deals has never been greater.

John Somorjai of Salesforce

Source: Salesforce

“There is just so much money available, so much dry powder, more than has ever been in the industry,” Somorjai said in an interview this week. “How we’re able to get into the best deals is really leveraging the strength of Salesforce and the tools we have.”

He said he’s roughly doubled the size of his investment team in the past two years to 15 people to keep up with the growing number of start-ups across the globe.

Salesforce Ventures doesn’t take board seats, keeping Somorjai and team mostly on the sidelines when it comes to questions around a potential acquisition or asset sale. On occasion, Salesforce does buy a Salesforce Ventures company, like its purchase in 2016 of productivity software start-up Quip.

“They never block a sale or create issues and only help,” said Jason Lemkin, founder of SaaStr, which hosts events on cloud software and invests in start-ups. “The fact they help a lot of top SaaS VCs mean they are often happy to have them in a hot deal.”

Somorjai, who joined Salesforce over 15 years ago, said many of his best investment ideas come from Benioff and Bret Taylor, the company’s operating chief (and Quip founder), who are both constantly out talking to customers.

About Benioff, Somorjai said, “Customers come to him and say, ‘Have you looked at this company? They’re doing really interesting things and helping us in this way.’ He feeds that data to me.”

‘Stage agnostic’

Salesforce Ventures is all over the map when it comes to check size. Or in Somorjai’s words, “We’re stage agnostic.”

In 2020, it participated in the $7.5 million Series A round for education-tech start-up AdmitHub and the $13.5 million Series B for Angaza, whose sales management platform targets emerging markets. It also invested $100 million in security vendor Tanium at a $9 billion valuation, and just last month backed data analytics company Databricks at a $28 billion valuation.

in recent years, late-stage growth investments have proven to be the fastest way to generate a hefty profit. Salesforce’s $250 million investment in Snowflake’s IPO was worth $529 million after one day of trading. Its $100 million purchase of Zoom shares almost doubled in three days in 2019.

That avenue to a quick buck may be closing. Companies now have many ways to go public, including through a direct listing or special purpose acquisition company (SPAC), neither of which involve selling IPO shares at what amounts to a huge discount.

In a direct listing, a new rule allows companies to raise capital while still unlocking the ability for existing investors to sell at market price. In a SPAC, companies raise money through a PIPE, or private investment in public equity. PIPE investors then end up with stock in the underlying company when it starts trading.

While Salesforce could look to PIPEs as another route for late-stage investing, Somorjai said he’s not currently pursuing that path.

“It’s a little bit early to see how that whole PIPE to SPAC trend evolves and how successful some of these SPACs are,” Somorjai said. “It is a very interesting new way for a private company to get liquidity quickly and probably much easier way for them to do it and potentially allows them to have less dilution.”

Investing and competing

Manny Medina, CEO of sales engagement software company Outreach, said Salesforce connected with him about making an investment in the early days of the Covid-19 crisis, at a time when “it was easier not to invest than to invest.”

“The world was going into a quagmire and you didn’t know which end was up,” said Medina, whose Seattle-based company develops software to help salespeople land deals and stay connected with customers. At the same time, “people are hoarding toilet paper and Purell,” he said.

Still, Salesforce wanted to be a part of Outreach’s $50 million financing round, which valued the company at $1.33 billion. Medina acknowledged that there was tension involved in allowing Salesforce onto his cap table, because the companies have competing products and Salesforce is the industry goliath.

Medina said that in conversations with Matt Garratt, Salesforce Ventures’ managing partner, he got comfortable with the team’s promise to protect his company’s intellectual property and have his back, while also getting him in front of the right people at Salesforce or with customers.

Ultimately, it was worth it for Outreach to do the deal because Salesforce has established a reputation for being a very smart investor, he said.

“At the end of the day, we’ll compete with them anyway, like it or not,” Medina said. “Either we get the relationship and get the signaling of someone who’s know for picking winners or we just compete with them without the money and the signaling.”

Outreach integrates with Salesforce but it doesn’t count on the company for distribution or use its AppExchange, which is Salesforce’s marketplace for third-party apps. According to Medina, “the only benefit we get from Salesforce is that they’re evangelizing the cloud.”

That makes Outreach a very different type of investment than Auth0 or nCino.

In November, shortly after its investment in Auth0, Salesforce chose the company’s identity management technology to power its consumer identity offering. Somorjai said it was a service that customers were requesting and Auth0 was a name that people trusted in the space.

For nCino, the partnership started even earlier. The company sells cloud software to help banks digitize and automate operations related to lending and portfolio management. From the beginning, nCino built its platform on top of Salesforce. In nCino’s IPO prospectus, the company mentioned Salesforce 99 times.

Salesforce first invested in nCino in 2014 and continued doing so over the next five years, amassing a 12% stake as of the company’s IPO last year. Those shares were worth almost $800 million at the end of 2020.

“They decided to build their entire business on the Salesforce platform, so it made a lot of sense to invest in that team and what they were doing,” Somorjai said. “I would still say the vast majority of our investments do start in the early stage.”

WATCH: With its $27.7 billion Slack deal, Salesforce eyes rivalry with Microsoft

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Senate passes $1.9 trillion relief bill



Speaker of the House Nancy Pelosi (D-CA) and Senate Minority Leader Charles Schumer (D-NY) walk following a press conference on an agreement of a coronavirus disease (COVID-19) aid package on Capitol Hill in Washington, D.C., U.S. December 20, 2020.

Ken Cedeno | Reuters

The Senate passed a $1.9 trillion coronavirus relief package on Saturday as Democrats rush to send out a fresh round of aid.

The Democratic-held House aims to pass the bill in the coming days and send it to President Joe Biden for his signature before a March 14 deadline to renew unemployment aid programs. The Senate approved the plan in a 50-49 party line vote as Republicans questioned the need for another broad spending package.

The legislation includes direct payments of up to $1,400 to most Americans, a $300 weekly boost to jobless benefits into September and an expansion of the child tax credit for one year. It also puts new funding into Covid-19 vaccine distribution and testing, rental assistance for struggling households and K-12 schools for reopening costs.

Senate approval brings Biden’s first legislative initiative closer to fruition. While the GOP and some economists criticized the scope of the rescue package as the U.S. vaccination pace picked up, Democrats said they needed decisive action to prevent a sluggish recovery and future economic pain.

“We will end this terrible plague and we will travel again and send our kids to school again and be together again,” Senate Majority Leader Chuck Schumer, D-N.Y., said before the vote. “Our job right now is to help our country get from this stormy present to that hopeful future.”

Senators passed the bill through budget reconciliation, a process that required no Republican support but every Democratic vote. Senate Democratic leaders had to wrangle disparate forces within their caucus to win unified support while trying to balance the need to keep nearly all House Democrats on board to pass the plan next week.

A disagreement within the party stalled the process for about 12 hours on Friday. Democratic Sen. Joe Manchin of West Virginia declined to back his party’s proposal for unemployment aid, sending leaders scrambling to craft a compromise that could win his support and salvage the bill.

Democrats settled on a plan to keep the current $300 per week jobless benefit boost in place through Sept. 6 while making the first $10,200 in assistance tax-free. The proposal trimmed the $400 weekly supplement through Aug. 29 passed in the House a week ago.

The change — plus a separate Senate decision to limit the number of people receiving stimulus checks — risked drawing the ire of progressives in the House. Biden endorsed the unemployment deal.

Final passage of the bill followed a vote-a-rama, where senators considered dozens of amendments to the package. Lawmakers, at times dozing at their desks or putting their heads in their hands, voted on changes through Friday night and into Saturday afternoon.

Republicans teed up symbolic political votes, including failed amendments to bar direct payments to prison inmates or limit the amount of aid to states that falsely reported nursing home deaths due to Covid-19 (which targeted New York).

The GOP lambasted the relief package, describing it as a wasteful list of Democratic priorities. Frequent targets were the bill’s $350 billion in state, local and tribal aid, along with its $170 billion set aside for K-12 schools and higher education.

“This isn’t a pandemic rescue package. It’s a parade of left-wing pet projects that they are ramming through during a pandemic,” Senate Minority Leader Mitch McConnell, R-Ky., said on Friday.

McConnell and others cited a stronger than expected February jobs report in arguing the U.S. does not need nearly $2 trillion more in stimulus. Even so, the U.S. had about 8.5 million fewer people employed than it did in the previous year.

Biden cited the need to sustain the recovery — along with the millions who stand to lose unemployment benefits without renewal of pandemic-era programs — in making his case for the relief bill Friday.

“Without a rescue plan, these gains are going to slow,” he said. “We can’t afford one step forward and two steps backwards.”

Proponents of the bill also touted its potential to slash child poverty.

The House has two options to approve the relief bill. It can either pass the Senate’s version outright, or go into a conference committee with the other chamber.

As the deadline to renew unemployment benefits approaches, approving the Senate plan appears more likely. Democrats are not expected to win any Republican support for the bill in the House.

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Stocks face the crosscurrents of higher interest rates and fiscal stimulus in the week ahead



Traders on the floor of the New York Stock Exchange

Source: The New York Stock Exchange

The Covid-19 aid package is on track for final congressional approval in the week ahead — and it could be a double-edged sword for markets.

The legislation should be greeted by optimism around the powerful lift it could give the stock market and the economy, but it could also be met with concern about what a historically large stimulus package could do to inflation and interest rates.

Stocks were mixed in the past week, with the Dow and S&P 500 higher, but the Nasdaq was dragged lower by interest rate-sensitive tech names. The benchmark 10-year Treasury yield has continued to press higher, revisiting its recent high of 1.61% on Friday, before trading at 1.54% in late trading. Yields move opposite price.

One wild card for stocks could be how interest rates behave around upcoming Treasury auctions.

There is a $38 billion 10-year auction on Wednesday and a $24 billion 30-year bond auction on Thursday.

Traders are watching these closely, after a historically weak 7-year Treasury note auction in February sent rates higher, even for the 10-year.

“We’re a little more cautious on them, just given what we saw in the 7-year and some Japanese selling pressure,” said Ben Jeffery, strategist on the U.S. rates strategy team at BMO Capital Markets.

He said Japanese institutions could be less interested in participating before the end of their fiscal year on March 31.

Stimulus coming

The Senate was expected to approve its version of the $1.9 trillion stimulus package and send it to the House for a vote during the week. Otherwise, the market is watching key inflation reports with the consumer price index expected Wednesday and the producer price index, scheduled for Friday.

“I think the markets will be watching closely the progress on the stimulus package,” said Michael Arone, chief investment strategist at State Street Global Advisors. “I think they’ll continue to watch the 10-year Treasury move and we’re going to get CPI data. That’s going to inform on those moves.”

He expects stimulus to remain a factor that could sway markets.

Inflation has been a worry for markets, since rising inflation could crush margins and corrode earnings power. For bond investors, it would erode value and make interest payments worth less.

“As long as the rise in Treasury yields matches the pick-up in inflation, I think the market will be able to handle that. I think the challenge is when yields get notably above inflation…I like to see them closely matched,” said Arone.

He said the market is concerned that the next stimulus package could overheat the economy and create inflation, particularly as it comes on the heels of the package approved in December.

“I think it lends to the conversation, ‘do you really need another $1.9 trillion?’ Arone said. “We’re going to pour more gas on the fire, and with this $1.9 trillion that’s what the market is concerned about.”

Consumer inflation is expected to remain somewhat muted for February, after the 1.4% rise year-over-year in core CPI in January. But the pace of inflation is likely to pick up notably in March and April, since the comparisons to last year, when the economy was shut down, will likely look extreme.

Choppy to continue

Strategists expect the push-pull between interest rates and stocks to continue.

On Friday, rates were higher after a strong February jobs report and stocks were also higher. The economy added 379,000 jobs in February, about 160,000 more than expected.

“I don’t think 1.5%, 1.6% on the 10-year is terribly troublesome for the market,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. She said the speed of the move was troubling.

The rotation out of tech and growth into more cyclical names in the financial, energy and industrial sectors continued in the past week.

Energy was up more than 10% with oil prices, which were at a near two-year high. Financials saw the next strongest move, gaining 4.3% for the week.

 “I think we’re in a choppy consolidation phase,” said Sonders.

“You’re seeing some extreme historical spreads between what energy and financials are doing recently versus tech and consumer discretionary,” she said.

Sonders added that even if the consolidation phase is close to ending, that suggests there could be more downside for some frothy names. “The good news here is I think it’s becoming a better environment for active stock pickers,” she said.

The Nasdaq Composite was down more than 10%, as of Thursday from its Feb. 12 high. But on Friday, the index turned around, gaining about 1.6%. That’s a positive sign for the market, particularly since it happened as rates moved higher.

The S&P 500 was up 0.8% for the week, and the Dow was up 1.8%. The Nasdaq, meanwhile, was down 2%.

“I think ultimately the higher quality segments that got hit in tech and communications probably did need to see a valuation reweighting,” Sonders said. “Arguably, we had some micro bubbles in the market, and they may need to suffer more downside.”

She said investors may want to adjust the allocation of their holdings regularly instead of waiting to adjustments around the calendar

“If you get a two three week, four five day surge in a particular sector, pare some back,” Sonders said, nothing that’s the opposite of what most people do.

Week ahead calendar


Earnings: Stitch Fix, Casey’s General Store

10:a.m. Wholesale inventories


Earnings: H&R Block, Navistar, Thor Industries, Dick’s Sporting Goods

6:00 a.m. NFIB small business survey

1:00 p.m. $58 billion 3-year note auction


Earnings: Campbell Soup, Oracle, Vera Bradley, Tupperware, United Natural Foods, Adidas, Cloudera, Bumble, Fossil, Lending Club, Express, AMC Entertainment

7:00 a.m. Mortgage applications

8:30 a.m. CPI

1:00 p.m. $38 billion 10-year note auction

2:00 p.m. Federal budget


Earnings: Ulta Beauty, Vail Resorts, DocuSign, Poshmark, Gogo, Zumiez,, WPP, Party City

8:30 a.m. Jobless claims

10:00 a.m. JOLTs

1:00 p.m. $24 billion 30-year bond auction


Earnings: Buckle

8:30 a.m. PPI

10:00 a.m. Quarterly Services Survey

10:00 a.m. Consumer sentiment

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