Month: February 2024

© Reuters. SEC’s New Era for SPACs: Tightening Rules Amid Market Realities

Quiver Quantitative – In a significant shift, the US Securities and Exchange Commission (SEC) is implementing new rules to tighten the reins on Special Purpose Acquisition Companies (SPACs), a move set to challenge the previously unbridled optimism surrounding these entities. At the height of the SPAC boom, startups enjoyed the liberty of promoting ambitious future goals with minimal legal repercussions. However, the reality post-merger has often been starkly different, as seen in the cases of Hyzon Motors (HYZN) and MSP Recovery (MSPR), whose actual performances have fallen significantly short of their initial projections.

This regulatory tightening comes as many companies that merged with SPACs during the pandemic era face the consequences of their overzealous forecasts. The new SEC rules, expected to come into force later this year, will remove the legal protections previously afforded to SPACs, holding them to stricter disclosure standards. This change marks the beginning of a new era for SPACs, with increased liability and a more stringent regulatory environment. As Shivani Poddar, a litigation partner at Herrick, Feinstein LLP, notes, these rules represent the first step in the SEC’s clampdown on SPACs, shifting the liability landscape for all parties involved.

Market Overview:
-Overly optimistic forecasts that fueled the SPAC boom come under SEC scrutiny, exposing performance shortfalls and sparking investor ire.
-New rules tighten disclosure requirements, raising legal risks for prospective issuers and ushering in a stricter era for blank-check companies.
-Companies like Hyzon Motors and MSP Recovery highlight the perils of inflated expectations, with results falling far short of pre-SPAC promises.

Key Points:
-SEC aims to protect investors from misleading forecasts by removing legal shields for SPACs under new regulatory framework.
-Nearly half of former SPACs languish below $2 per share, struggling with weak financials and facing potential cash crunches.
-Nikola’s production woes and TMC’s 25-year Ebitda projections exemplify the audacity, and potential pitfalls, of some SPAC forecasts.
-While DraftKings (NASDAQ:DKNG) and MoonLake Immunotherapeutics offer success stories, the majority grapple with reality checks, eroding investor confidence.

Looking Ahead:
-Stricter disclosure requirements and increased legal liability paint a challenging landscape for future SPAC activity.
-Performance pressure intensifies for de-SPACs navigating economic headwinds and investor wariness of speculative ventures.
-The SEC’s move marks a potential turning point, pushing SPACs towards greater accountability and a focus on realistic growth prospects.

The move aims to extend investor protections to alternative public listing methods. The SEC’s initiative is particularly important for less sophisticated investors, like those who fueled the meme stock craze, who may not fully grasp the uncertainties inherent in company forecasts made before a SPAC merger. The new rules mean firms involved in deals could face increased legal threats, potentially adding to the chill in an already cooling market. The impact is already visible in the sharp decline in SPAC IPOs since 2021 and the struggles of many companies that used SPAC mergers for back-door entries onto major US exchanges.

Despite the dismal performance of many former SPACs, with nearly 200 trading below $2 per share, the market has seen some success stories. For instance, DraftKings (DKNG), which went public in 2020, has seen its shares nearly quadruple. This mixed bag of outcomes highlights the complexities of SPAC transactions and underscores the need for a balanced approach that acknowledges both the potential benefits and risks of this alternative route to going public.

This article was originally published on Quiver Quantitative

© Reuters

(Updated – January 31, 2024 11:29 AM EST)

Investing.com — U.S. futures traded lower Wednesday as investors digested earnings from some tech giants ahead of the conclusion of the latest Federal Reserve policy-setting meeting.

Here are some of the biggest U.S. stock movers today:

Alphabet (NASDAQ:GOOGL) stock slumped 6.4% after the Google-parent reported holiday-season advertising sales below expectations and projected higher spending this year on artificial intelligence.

Microsoft (NASDAQ:MSFT) stock fell 1% after the software giant forecast rising costs to develop new artificial-intelligence features, eclipsing a quarterly results beat.

Tesla (NASDAQ:TSLA) stock fell 0.2% after a U.S. judge voided CEO Elon Musk’s record-breaking $56 billion pay package.

Starbucks (NASDAQ:SBUX) shares were volatile after the coffee chain cut its annual sales forecast, warning of softer demand in January and a slow recovery in China. However, even more weakness had been expected following disappointing store traffic in November and December. The stock was flat midday after earlier rising 3%.

AMD (NASDAQ:AMD) stock fell 3.4% after the chipmaker’s first-quarter revenue forecast and a boosted projection for AI processors failed to meet expectations.

Mondelez (NASDAQ:MDLZ) stock fell 1.7% after the Carbiry parent posted a rise in fourth-quarter sales on Tuesday, but price hikes took a toll on volumes as it squeezed demand.

Thermo Fisher (NYSE:TMO) stock fell 3.3% after the medical equipment maker forecast annual profit and revenue below expectations, signaling a slump in demand for its services.

Novo Nordisk (NYSE:NVO) stock rose 4.8% after the Danish drugmaker forecast another year of double-digit growth due to the popularity of its weight-loss drug Wegovy.

Boeing (NYSE:BA) stock rose 6.5% after reporting a smaller than expected loss in the fourth quarter. The embattled aircraft manufacturer also postponed 2024 outlook, with CEO Dave Calhoun saying the company faces a “serious challenge.”

Cigna (NYSE:CI) stock rose 1% after the health insurer agreed to sell its Medicare business to Health Care Service Corp for $3.3 billion in cash.

Rockwell Automation (NYSE:ROK) stock fell 15% after missing first quarter EPS and revenue estimates, fueling doubts about full-year growth.

Stryker (NYSE:SYK) climbed 6% after reporting better than expected earnings and revenue in the fourth quarter. The medical device company’s strong performance prompted analysts to upgrade the stock’s rating to ‘buy’, while more than a half dozen others increased their price targets.

Edwards Lifesciences (NYSE:EW) climbed 6.3% and Zimmer Biomet (ZBH) climbed 3% following strong results from Stryker and Boston Scientific (NYSE:BSX). Boston Scientific was higher by 2.6%.

New York Community Bancorp (NYSE:NYCB) declined 35% after it surprised investors with a larger than expected provision for credit losses and a dividend cut. Weakness in NYCB weighed on other regional banks, causing a related ETF (KRE) to decline 3.6%.

Additional reporting by Louis Juricic

© Reuters. FILE PHOTO: Federal Reserve Board Chair Jerome Powell answers a question at a press conference following a closed two-day meeting of the Federal Open Market Committee on interest rate policy at the Federal Reserve in Washington, U.S., November 1, 2023. RE

By Howard Schneider and Lindsay (NYSE:LNN) Dunsmuir

WASHINGTON (Reuters) – Federal Reserve Chair Jerome Powell, in a sweeping endorsement of the U.S. economy’s strength, said on Wednesday that interest rates had peaked and would move lower in coming months, with inflation continuing to fall and an expectation of sustained job and economic growth.

Powell, speaking after the end of a two-day policy meeting, declined to declare victory in the U.S. central bank’s two-year inflation fight, vouch that it had achieved a sought-after “soft landing” for the economy or promise that rate cuts would come as soon as the Fed’s March 19-20 meeting, as investors had hoped in the run-up to this week’s policy decision.

“Inflation is still too high. Ongoing progress in bringing it down is not assured,” Powell said after the Fed’s policy-setting committee kept the benchmark overnight interest rate in the 5.25%-5.50% range and announced that rate cuts would not be appropriate until there is “greater confidence that inflation is moving” towards the central bank’s 2% target.

But in almost every other way during a 48-minute session with reporters Powell offered an unhedged round of good news about the status of an aggressive war on inflation that many economists felt would tilt the U.S. into recession and throw millions out of work with the highest and fastest rate hikes in roughly 4 decades.

“The executive summary would be growth is solid to strong … 3.7% unemployment indicates the labor market is strong … We’ve got six good months of inflation data and an expectation that there’s more to come,” the Fed chief said. “Let’s be honest, this is a good economy.”

Powell said rate cuts would come once the Fed becomes more secure that inflation will continue to decline from a level it still characterizes as “elevated,” at least on a one-year basis, with the personal consumption expenditures price index, a key measure used by policymakers, at 2.6% on an annual basis as of December.

But he also suggested it was just a matter of time before that conviction kicks in.

Inflation is already below 2% when measured on a seven-month basis and the Fed has pledged rate cuts would begin before the one-year rate reaches the target level.

After Powell all but ruled out a cut at the March meeting, investors in contracts tied to the Fed’s policy rate keyed in on May 1 as the day the central bank will begin lowering that rate from the level it has held since last July.

While Powell’s comments lay out a rosy economic scenario in a presidential election year that could lean heavily on public attitudes about inflation and wages, they were nonetheless a short-term blow to investors who had been expecting rate cuts to start as early as seven weeks from now.

U.S. stocks fell after Powell’s comments and closed sharply lower on the day, while the dollar rose against a basket of currencies. U.S. Treasury yields also dropped.

“It is clear that the Fed are in no hurry to ease as rapidly as the market prices, with further promising inflation data still required in order to unlock the first rate reduction,” said Michael Brown, a market analyst at Pepperstone.

The outcome of the meeting also pushed back against calls from labor advocates for reductions in order to protect the current low unemployment rate at a time when some feel there may be developing weaknesses in the economy.

BANK, CREDIT RISKS DROPPED

Those risks were brought home on Wednesday when New York Community Bank announced an unexpected loss, an echo of banking troubles last spring that the Fed hopes have been put to rest. The latest policy statement from the central bank’s Federal Open Market Committee (FOMC), however, removed language, put in place following the failures in 2023 of Silicon Valley Bank and other lenders, that said the banking system is “sound and resilient” – a fact that in normal times would not need to be stated.

The Fed also dropped references to the uncertain impact of tight credit on households and businesses and the “lags” with which changes in monetary policy are felt in the economy, a hint that U.S. central bankers feel the current best-case outcome may endure absent some sort of unexpected shock.

Overall, the changes made to the policy statement codify what has been a developing Fed “pivot” that ends roughly two years in which the central bank’s bias has been towards moving rates higher and the risks seen as tilted towards those posed by escalating prices.

“Our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell said.

Risks to the Fed’s dual employment and inflation goals “are moving into better balance,” the Fed’s policy statement said. “In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”

By contrast, the Fed’s prior statement, issued on Dec. 13, had laid out the conditions under which it would consider “any additional policy firming,” language that excluded any consideration of rate cuts.

Fed officials did not issue new economic projections at their meeting this week. As of the Dec. 12-13 meeting, policymakers envisioned cutting the policy rate by 75 basis points over the course of this year, an outlook that will be updated at the Fed’s meeting in March.

(This story has been refiled to fix punctuation in paragraph 5)

© Reuters Citi says recent China stock inflows ‘entirely driven by Chinese investors’

The recent large inflows into China equity funds have been domestically driven, according to analysts at Citi in a research note Wednesday.

Analysts told clients that the investment bank’s latest fund flow report showed large inflows to China equity funds, with this week’s equity markets positioning showing a turn to bullish repositioning in China futures.

Citi recently reported a weekly inflow to China equity funds of $12.6 billion, representing the largest ETF inflow since 2015. Analysts said this may have led ETF trading to be around 10% of the daily turnover of CSI 300 stocks for a couple of days.

“Drilling down into the fund flow data, recent flows have been entirely driven by Chinese investors into domestic ETFs while ‘international’ ETFs continue to have outflows and the futures net positioning remains the most bearish across markets,” wrote analysts.

“Rather than seeing the large inflows as a potential change in general investor sentiment on China, we see this as a domestic market anomaly, perhaps state-directed through purchases by units of the sovereign wealth funds,” they explained.

© Reuters. Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 29, 2024. REUTERS/Brendan McDermid

By Stephen Culp

NEW YORK (Reuters) -U.S. stocks tumbled on the last trading day in January after the Federal Reserve held interest rates steady while dashing hopes for interest rate cut as soon as March.

The three major U.S. stock indexes were already weighed down by weakness in tech and tech-adjacent megacap stocks the day after disappointing Alphabet (NASDAQ:GOOGL) results.

All three extended losses after the Fed’s announcement and Chair Jerome Powell’s subsequent press conference. The S&P 500 closed with its steepest daily loss since Sept. 21.

All three indexes still notched gains for the month.

As expected, the Federal Open Markets Committee (FOMC) left its key policy rate unchanged at 5.25%-5.50% against a backdrop of gradually cooling inflation and a resilient economy.

In its statement, the FOMC said it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” disappointing investors who had hoped for a quick dovish pivot.

“There were no surprises in the Fed statement,” said Oliver Pursche, senior vice president at Wealthspire Advisors, in New York. “It does appear that further rate hikes are off the table, which is a positive, but investors should continue to expect higher for longer as we’re still quite a ways away from the sort of economic data that would push the Fed to lower rates.”

The indexes gyrated move after Fed Chair Jerome Powell said the FOMC was confident it will be appropriate to reduce rates once it has confirmation inflation has been reined in, but effectively ruled out a March rate cut.

“The good news is we can forget about any more tightening,” said Art Hogan, chief market strategist at B. Riley Wealth in New York. “The bad news it’s ‘when’, not ‘if’, they’re going to cut rates, and that ‘when’ has been pushed out to what had been the fringes of consensus.”

The Dow Jones Industrial Average fell 317.01 points, or 0.82% , to 38,150.30, the S&P 500 lost 79.32 points, or 1.61%, to 4,845.65 and the Nasdaq Composite lost 345.88 points, or 2.23%, to 15,164.01.

All 11 major U.S. stock indexes ended red, with communication services and tech shares suffering the largest percentage losses.

Fourth quarter earnings season has shifted into overdrive, with nearly one in five companies in the S&P 500 slated to report this week.

Thus far, 176 have posted results. Of those, 80% have beaten expectations, according to LSEG.

Analysts now see aggregate fourth quarter S&P 500 earnings growth of 6.1% year-on-year, an improvement over the 4.7% forecast at the end of the quarter, per LSEG.

Alphabet Inc shares slid 7.5% the day after Google’s parent reported disappointing ad sales and projected an increase in capital spending to boost its artificial intelligence capabilities.

Microsoft Corp (NASDAQ:MSFT) also forecast rising costs to develop AI features, but its quarterly results beat analyst expectations. Its shares were last off 2.7%.

Shares of New York Community Bancorp (NYSE:NYCB) tumbled 37.7%, touching their lowest level in over two decades after posting a surprise loss and slashing its dividend. The KBW Regional Bank index slid 6.0%.

A spate of economic indicators released on Wednesday, including fourth quarter employment costs and ADP’s employment index, suggested some easing in the labor market, viewed by the Fed as a necessary precondition for bringing inflation down to its 2% annual target.

Declining issues outnumbered advancers by a 3-to-1 ratio on the NYSE. There were 326 new highs and 56 new lows on the NYSE.

On the Nasdaq 1,136 stocks rose and 3,160 fell as declining issues outnumbered advancers by about a 2.8-to-1 ratio.

The S&P 500 posted 59 new 52-week highs and 3 new lows while the Nasdaq recorded 132 new highs and 125 new lows.

Volume on U.S. exchanges was relatively heavy, with 13.3 billion shares traded, compared to an average of 11.5 billion shares over the previous 20 sessions.

© REUTERS AMD offers better-than-expected sales guidance on ‘accelerating’ demand for high-end chips

Advanced Micro Devices, Inc. (NASDAQ:AMD) reported better-than-expected financial results for its fourth quarter.

The chipmaker posted an earnings per share (EPS) of $0.77, exactly matching the analyst estimates. In terms of revenue, AMD reported a strong quarter with $6.2 billion in revenue, surpassing the consensus estimate of $6.13 billion.

The stock is down 3.7% in early trading Wednesday but is off the worst levels of the session.

Looking ahead, AMD expects its revenue to be between $5.1 billion and $5.7 billion. This forecast fell below the consensus estimate of $5.73 billion.

“We finished 2023 strong, with sequential and year-over-year revenue and earnings growth driven by record quarterly AMD Instinct GPU and EPYC CPU sales and higher AMD Ryzen processor sales,” said AMD Chair and CEO Dr. Lisa Su.

“Demand for our high-performance data center product portfolio continues to accelerate, positioning us well to deliver strong annual growth in what is an incredibly exciting time as AI re-shapes virtually every part of the computing market.”

Data Center segment revenue was $2.3 billion, up 38% year-over-year and 43% sequentially “driven by strong growth in AMD Instinct GPUs and 4th Gen AMD EPYC CPUs.”

Wells Fargo analysts lifted the price target by $25 to $190 per share and urged clients to buy the stock on weakness.

“Remain positive on AMD’s 2024-2025+ MI300X ramp (now model 2025 at $7.1B vs. prior $3.3B) + positioning for trad’l server CPU recovery,” the analysts commented in a post-earnings note.

Similarly, Roth MKM analysts also lifted the price target to $190 as the company’s Data Ceter GPU guidance reflects demand.

“We believe AMD’s core data center momentum can continue to drive strength in shares with the company raising its CY24 AMD GPU guidance significantly, reflecting accelerating customer adoption.”

Elsewhere, Northland Capital, which recently downgraded the stock, upgraded the stock back to Outperform following the earnings-related sell-off.

“We prefer not to downgrade and upgrade so rapidly but the weak demand except for non-AI products and high expectations for AI chips left us little alternative,” analysts commented. “We expect demand to improve for non AI products throughout the year, and based on AMD’s strong execution there is likely still some upside to our AI forecast. Re-established PT of $195.”

© Reuters. FILE PHOTO: People walk past screens displaying the Hang Seng stock index and stock prices outside the Exchange Square in Hong Kong, China January 23, 2024. REUTERS/Joyce Zhou/File Photo

By Herbert Lash

NEW YORK (Reuters) -Treasury yields and a gauge of global equities fell sharply after the Federal Reserve left interest rates unchanged as expected on Wednesday but indicated it would not reduce them until inflation was “moving sustainably” towards its 2% target.

The Fed took a major step towards lowering rates in coming months in a policy statement that tempered inflation concerns with other risks to the U.S. economy and dropped a longstanding reference to possible further hikes in borrowing costs.

The dollar rose against the euro and other major currencies after Fed Chair Jerome Powell at a press conference said that a rate cut in March was not the U.S. central bank’s “base case,” comments that were less dovish than many investors had expected.

First and foremost, the Fed wanted to double down on its inflation fighting credibility, said Michael Arone, chief investment strategist for State Street’s U.S. SPDR business in Boston.

“That’s a signal to the market that it shouldn’t get ahead of itself on the potential for all these rate cuts” that had been priced in to the market, Arone said.

“They also wanted to balance that with the notion that they do believe that it will be appropriate to cut rates later this year.”

With no indication of rate reductions soon, futures pared bets for a cut in March to 33.5% from almost 90% at year-end 2023 and increased the likelihood to almost 90% when the Fed meets in May, according to CME Group’s (NASDAQ:CME) FedWatch Tool.

MSCI’s gauge of stocks across the globe lost 0.92% and stocks on Wall Street closed sharply lower, already weighed down by weakness in tech and other megacap stocks the day after disappointing results from Google-parent Alphabet (NASDAQ:GOOGL).

The tech-rich Nasdaq was down 2.23%, the S&P 500 lost 1.61% and the Dow Jones Industrial Average fell 0.82%.

“The good news is we can forget about any more tightening. The bad news it’s ‘when’, not ‘if’, they’re going to cut rates, and that ‘when’ has been pushed out to what had been the fringes of consensus,” said Art Hogan, chief market strategist at B. Riley Wealth in New York.

In Europe shares rose slightly, with the pan-regional STOXX 600 index earlier closing up 0.01%, lifted by robust corporate updates and strong market performances in Spain and Italy.

The dollar index, which has gained almost 2% against a basket of major currencies this month in its biggest advance since September, slid earlier against the euro and yen as traders awaited the Fed’s statement. It later rose 0.15%.

The euro fell 0.26% to $1.0812 and the yen strengthened 0.47% at 146.90 per dollar and was on course for a monthly decline of 4.5%, which would be its largest monthly drop since June 2022.

Treasury yields slid to near three-week lows and the benchmark 10-year note posted its largest daily loss since December on the Fed’s no rate-cut soon stance.

The two-year Treasury yield, which reflects interest rate expectations, fell 14.4 basis points to 4.215%, while the 10-year’s yield slid 13.1 basis points at 3.926%.

Euro zone government bond yields dropped after mixed economic data from Germany and France, and dovish comments from European Central Bank officials.

Germany’s 10-year government bond yield, the benchmark for the euro area, fell 9.7 basis points to 2.177%.

Other market moves were largely subdued as traders stayed on guard ahead of the Fed decision.

Earlier China’s blue-chip index lost 0.9% after a survey showed manufacturing activity shrinking in January for a fourth month.

That dragged MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.4%, and it was heading for a monthly loss of roughly 5%, snapping a two-month winning streak.

In Japan though, the Nikkei ended the month with a more than 8% gain, its best January performance since 1998.

Oil prices settled lower, pressured by low economic activity in leading crude importer China and a surprise build in U.S. crude inventories as producers ramped up output following frigid weather this month.

Brent crude futures for March, which expire on Wednesday, settled down $1.16 at $81.71 a barrel. U.S. West Texas Intermediate crude futures fell $1.97 to settle at $75.85.

U.S. gold futures settled 0.8% higher at $2067.40 an ounce.

© Reuters

Investing.com — The Federal Reserve left interest rates unchanged Wednesday, though signaled no rush to cut rates as more confidence was needed that “elevated” inflation continues to slow toward target at a time of “solid” economic growth and strong job gains.

Fed sees rates higher for longer as inflation battle continues; Powell shoots down March cut hopes

“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the Fed said in its monetary policy statement on Wednesday. 

Fed chairman Jerome Powell dealt a further blow to a March rate cut, saying it was unlikely the level of confidence would have improved enough by March to cut rates.

“Based on the meeting today, I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting, to identify March as the time to do that,” Powell said in response to a question about whether the Fed could cut in March. The Fed chief stressed, however, that future policy decisions would depend on incoming data.   

While the odds of a March cut were dealt a blow, falling to about 30% from about 65% prior to the statement, some economists continued to keep hopes of an earlier rate cut alive. 

“[W]e are maintaining our call for a 25 basis point rate cut in March,” Jefferies said Wednesday, though said that should labor market data due Friday come in stronger than expected, “we might be inclined to push the forecast out to May.”

Fed’s tightening bias in rearview mirror 

While there isn’t a pressing need to rush to cut rates, the statement offered clues that the Fed has shifted to less hawkish stance as prior remarks that were present in Fed’s December statement referring to “additional policy firming,” were removed. 

“FOMC members no longer have a tightening bias,” Morgan Stanley said Wednesday, adding that a June cut remains in play. 

“We continue to expect the first rate cut in June, and four 25bp cuts in total this year followed by an additional 200bp in 2025,” it added. That is above the Fed’s December projection for three rate cuts.

Soft landing gets boost as Fed sees more balanced risks to inflation, labor market goals  

The Federal Open Market Committee, or FOMC, left its benchmark rate in a range of 5.25% to 5.50%.

It was the fifth-straight meeting that the FOMC decided to keep monetary policy steady as recent economic data — showing slowing inflation, but a still strong labor market — has fueled expectations that the Fed could deliver a soft landing by reining in inflation to its 2% target without causing a major spike in unemployment.

The Fed appeared to be endorsing view, acknowledging in the statement that “risks to achieving its employment and inflation goals are moving into better balance.”

The latest reading on core personal consumption expenditure prices, the Fed’s preferred measure of inflation, fell below 3% on an annualized basis in December for the first time since April 2021. But while the Fed welcomed the slowdown in inflation over the past year, the pace remains “elevated.”