Despite being David to Goliath, university endowments with less than $50 million have emerged as strong performers in the market. Over the 12-month period ending June 30, 2023, these smaller endowments gained an average return of 9.8%, outshining their larger counterparts with over $5 billion in assets, which only averaged 2.8% returns. Meanwhile, the S&P 500 index recorded a return of 19.6%.

It's important to note that stocks make up just 12.5% of all endowments, with larger funds allocating a higher percentage of their assets to alternative strategies such as private equity, hedge funds, and venture capital. In the previous year, these strategies remained flat or experienced modest declines. Smaller funds, on the other hand, tend to allocate a relatively larger portion to stocks. Mark Anson, CEO of asset manager Commonfund, highlights that those who allocated more to public equities saw better performance overall.

Harvard University, with assets totaling $50.7 billion, recorded a gain of 2.9% during this period. While it may not be an outstanding result, it is still a respectable achievement. Alternative assets often catch up with public market performance later on. Over the past decade, big endowments have posted average returns of 9.1%, compared to 7.2% for all funds.

However, rising costs pose a challenge for all of these funds, primarily driven by financial aid. Schools withdrew a total of $28.4 billion from their endowments during this period, marking an 8.4% year-over-year increase. Additionally, gift giving decreased from $14.9 billion in 2022 to $13.3 billion.

Last Week's Market Recap

Markets The previous week saw a series of noteworthy events in the market. AI favorites Nvidia surpassed Amazon.com in market capitalization, while Arm Holdings experienced a 67% surge before retracting. Bitcoin also broke the $50,000 mark. On the global front, both the U.K. and Japan slipped into recession. Consumer prices for January came in at 3.1%, slightly missing expectations of 2.9%, with core CPI remaining unchanged at 3.9%. Stocks initially plunged, then rebounded upon reflection, only to later sink due to hot January producer prices. In summary, the Dow industrials fell by 0.11%, the S&P 500 by 0.42%, and the Nasdaq Composite by 1.34%.

Companies

Carl Icahn and his team recently acquired a 10% stake in JetBlue Airways, and it is reported that they may seek representation on the board of directors. Meanwhile, Lyft's recent earnings report contained an error that resulted in an exaggeration of their projected 2024 margins. On Valentine's Day, drivers from Uber Technologies, Lyft, and DoorDash went on strike to protest against low pay. In unfortunate news, Paramount Global had to lay off 800 employees following a record-setting Super Bowl broadcast. Additionally, Berkshire Hathaway announced that they sold shares of Paramount and their largest holding, Apple. Moreover, Cisco Systems announced their plan to cut 5% of their workforce, which accounts for approximately 4,000 jobs.

Deals

In the world of oil and gas, Diamondback Energy has made an agreement to acquire Endeavour Energy Resources for a staggering $26 billion in a combination of cash and stock. Both companies are active players in the Permian Basin. In another exciting deal, an investor group that includes private equity firm EQT has agreed to purchase Believe, a French-based digital music company, for $1.64 billion. Furthermore, reports from The Wall Street Journal suggest that retail giant Walmart is currently in talks to acquire TV maker Vizio for a reported sum of approximately $2 billion. Lastly, Gilead Sciences has revealed that they will be acquiring liver specialist CymaBay Therapeutics for a substantial $4.3 billion.

Next Week

Monday 2/19

On President's Day, both equity and fixed-income markets will be closed in observance of the holiday. However, before the market opens, Home Depot and Walmart will be reporting their quarterly results.

Wednesday 2/21

During this week, the Federal Open Market Committee (FOMC) will release the minutes from their late-January monetary-policy meeting. Despite market expectations, the FOMC decided to keep the federal-funds rate unchanged at a multidecade high of 5.25%-5.50% during that meeting. In the Summary of Economic Projections released at the meeting, the central bank indicated its plans for three 25-basis-point interest-rate cuts throughout the year. Prior to the meeting, traders were anticipating six 25-basis-point rate cuts, although this has now been revised to fewer than four.

Nvidia, a major player in the tech industry, will be reporting their fourth-quarter fiscal-2024 earnings. This particular earnings release is highly anticipated and consequential for the stock market, as much of the S&P 500's recent gains can be attributed to the hype and hope surrounding artificial intelligence. Nvidia, commonly viewed as the flagship company in the AI sector, has already experienced significant growth with their stock rallying 47% this year following a staggering 239% jump in 2023. Analysts are estimating that Nvidia will earn $4.59 per share on $20.4 billion in revenue for the quarter.