US markets continue their ascent, utility companies in the firing line and another activist tries to woo Match Group

“Investors face a tricky situation. On one hand, the US economy is proving to be resilient, with better-than-expected retail sales in June boosting hopes for decent second-quarter GDP figures. On the other hand, a more resilient economy shows that the Fed’s current policy of keeping interest rates high isn’t destabilising the country and therefore there is no rush to cut rates,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“Judging by the positive market reaction to the US retail sales data, it appears that investors are focusing on the economic strength for now, while also maintaining a strong belief that monetary policy starts to ease after the summer. They’re certainly happy to keep bidding up US shares judging by the performance of the S&P and Dow Jones.

“The Fed’s next rate meeting is 31 July and the market is ascribing a 93.5% probability that rates will stay the same. The situation then completely changes, with a rate cut universally predicted by traders in September.”

Utility Companies: Severn Trent and United Utilities

“Severn Trent and United Utilities got a soaking after water regulator Ofwat added them to its list of companies being scrutinised over sewage spills.

“The regulator seems to be fed up with wastewater firms polluting rivers, lakes and beaches previously designated safe to bathe in, and is taking an ‘enough is enough’ approach to the matter. This follows concerns from the Environment Agency last year that water companies weren’t doing enough to stop polluting waterways.

“Offending companies face large fines, but their reputation is on the line and public sentiment towards water utilities is arguably as low as you can get.

“Investors used to park money in utilities’ shares in the belief they were a low-risk choice which paid out regular dividends without any drama. That is certainly no longer the case.”

Match Group

“Match Group’s business model is based on bringing people together, but the company now seems to be attracting the wrong kind of crowd.

“Starboard Value has become the third activist investor to appear on Match Group’s top 20 shareholder register, alongside Neuberger Berman and Elliott, all hoping to flex their muscles and bring about change.

“An 80% slump in the share price since 2021 implies that something has gone very wrong with the business. Investors appear to be swiping left at Match Group’s progress since the pandemic, but the presence of three activists implies the company is not entirely undatable. It simply needs help to bring out its best qualities.

“Despite owning some of the best-known brands in the dating market, Match Group seems to be struggling with intense competition and doesn’t know how to sweet-talk its way back into the market’s good books. A lack of innovation seems to be a key bugbear and activists are putting pressure on the company to come up with some new ideas to drive up user numbers.

“Often in turnaround situations it’s suggested that companies might be better out of the public eye. Listed companies are under intense scrutiny from the market and failure to quickly show progress with a recovery plan can enrage investors and cause management to lose faith. Therefore, the idea that Match Group might be better off as a private company makes sense. However, activist investors use public naming and shaming to their advantage and can put more pressure on a business to try different things if it is under the public spotlight.

“Activists invest in a company to make money over the short term rather than acting as long-term owners. It’s therefore interesting that Starboard Value has reportedly told Match Group to consider going private if turnaround efforts are unsuccessful. Such a statement might simply be a way to flush out potential bidders.”

These articles are for information purposes only and are not a personal recommendation or advice.