Every week I’ll provide updates on the latest trends in SaaS valuations, earnings announcements, and highlight any significant news. Follow along to stay up to date! Quarterly Reports Summary Rising Rates The 10-Year rate is not always correlated to cloud software multiples, but since cloud multiples hit their high in early February, the correlation has been extremely high. Multiples peaked on Feb 8th and have since steadily declined nearly 30%. During the period from Feb 8th to today, the correlation between the 10-Year rate and median cloud multiples has been -93%! The negative correlation means as one variable goes up (rates) the other goes down (multiple). 0.93 (on an absolute basis) is incredibly high. Is this just a coincidence? We’re cloud multiples stretched, due for an inevitable pullback, and that pullback just so happened to occur when the 10 Year rates were rising (which they have been since August '20)? My personal take is rates hit a certain threshold, continued to rise, and this drove massive sector rotation. There are moments in the market when events and money flows overwhelm all else. I’ll dig into this further in a later post. But for now, here’s the date - looking at the recent highly correlated period, as well as zooming out over the last 6 years. Over a 6 year horizon, the correlation is not nearly as strong (-0.5)
Could you compare the 10Y yield with the inverted multiple? i.e. a yield against a yield. Would make it easier to see how the spread is evolving over time. Thank you
Clouded Judgement 3.19.21
Thank you for compiling all this, much appreciated
What’s your ETF pick for long term / buy and hold folks? IGV? :)
Can you share the excell file of the last chart?
Thank you for your work, it's a pleasure to wrap up every week with your detailed analysis.
Could you compare the 10Y yield with the inverted multiple? i.e. a yield against a yield. Would make it easier to see how the spread is evolving over time. Thank you