In this article, we will explore the reasons behind the current Rich Session in the stock market and how higher interest rates are affecting the valuation paradigm. As a seasoned investor and hedge fund manager, tAndrew Glaze, CFA CEO of Wealth Stack provides valuable insights on how to navigate this changing investment environment and how to take advantage of opportunities in the current job market.
The Rich Session is driven by a few factors, one of which is higher interest rates. As rates continue to rise, but at a slower rate, the way in which stocks are valued is changing. I took a look at large-cap stocks based on current Free Cash Flow (FCF) yield and Meta, a stock that traded at a 2% FCF yield and was growing revenue at a rate of 35% during its peak, is currently trading at a 14x Price to FCF ~7%. If it were at its peak multiple, Meta would have provided an immediate 250% return to shareholders. However, with the Fed heading towards a 5% rate, the math is not as easy as it used to be.
The Rich Session is also being driven by changes in the job market. Despite big-company layoffs making headlines, overall employment statistics have not been greatly affected. This is partly due to industries that aren't as well-represented in the stock market, such as the leisure and hospitality sector, still struggling to hire workers. I suggest that this is a positive development for America, as it increases opportunities for lower and middle-income workers and slows the growth of the wealth gap.
I left the hedge fund industry to start my own business, providing a unique perspective on the changes in the investment environment. The easy ride in stocks is over and that these changes are measured in decades, not years. However, I also see opportunities for entrepreneurs in the current job market, particularly in the gig economy, where there is a surplus of talent available at great rates. I advise entrepreneurs to take advantage of this opportunity and create operating businesses.