Wall Street Breakfast: What Moved Markets

- Stocks ended the week on a down note after the simultaneous expiration of single-stock options, single-stock futures, and stock-index options, and stock-futures added to the volatility. Concerns on higher interest rates and the impact of a surge in omicron covid variant cases weighed on investors. The benchmark 10-year U.S. Treasury note dropped to its lowest yield in two weeks at 1.401%. For the week, the Dow booked a 1.7% decline, the S&P 500 lost 1.9% and the Nasdaq Composite finished with a weekly drop of 3%. Over the past four weeks, small-cap and value stocks have both entered correction territory.

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Top News Shutterstock Stocks ended the week on a down note after the simultaneous expiration of single-stock options, single-stock futures, and stock-index options, and stock-futures added to the volatility. Concerns on higher interest rates and the impact of a surge in omicron covid variant cases weighed on investors. The benchmark 10-year U.S. Treasury note dropped to its lowest yield in two weeks at 1.401%. For the week, the Dow booked a 1.7% decline, the S&P 500 lost 1.9% and the Nasdaq Composite finished with a weekly drop of 3%. Over the past four weeks, small-cap and value stocks have both entered correction territory.       Forex Lira collapse The Turkish lira plunged this week to a new record low of nearly 17 to the dollar, as concerns snowballed over President Erdogan's risky monetary policy. He believes in an unorthodox approach that higher rates cause inflation, rather than prevent it, but despite the beliefs the annual figure reached 21.3% alone in November. Soaring inflation has had devastating impacts on Turkey's import-reliant economy, while sharply eroding Turks' earnings and savings. Analyst commentary: "Last week's apparent relative stability of TRY was artificial and non-sustainable. Now we see the build-up pressure unfolding, driving lira weakness to the next level," Commerzbank said in a research note. "Ultimately, the CBRT needs to show the market some sign of caring about taming inflation," added Henrik Gullberg, a macro strategist at Coex Partners. "What we have seen so far is not enough to stop the rout." The latest crash followed the central bank's fourth market intervention in two weeks, though the currency continued sliding into the weekend. Under pressure from Erdogan, Turkey's central bank  slashed its policy rate by another 100 basis points to 14% this, marking the fourth cut since September. Prior to the news, the S&P affirmed Turkey's long-term foreign currency rating at B+, but revised its outlook to negative on an uncertain policy direction. Next steps? The unconventional monetary policy has seen the Turkish lira lose 40% of its value against the dollar since September, making it one of the worst performing investments in the world. Meanwhile, Erdogan has fired three central bank chiefs over the last two years due to disagreements over monetary policy. Brawls and fistfights have even broken out among lawmakers in the Turkish parliament as the opposition fight the government's handling of the economy. (11 comments)       Sponsored By Pfizer Pfizer: Driving Innovation The Pfizer-BioNTech COVID-19 vaccine was developed with historic speed. What's next? Sign up and see how Pfizer is applying these lessons to the future of drug discovery. Click here to learn more. Automotive Electric road trip Shares of Harley-Davidson (HOG) soared as much as 14% on Monday after detailing plans to merge its electric motorcycle division with SPAC AEA-Bridges Impact Corp. (IMPX). The deal valued at $1.77B would result in the first publicly traded EV motorcycle company in the U.S. by listing on the New York Stock Exchange under ticker "LVW." Harley-Davidson would retain a 74% stake in the company, with CEO Jochen Zeitz becoming chairman of LiveWire for up to two years following the completion of the listing. Backdrop: Earlier this year, Harley-Davidson spun off LiveWire into its own standalone brand as the company looked to recapture market share. Its core baby boomer customer base is getting older, interest in motorcycling is not as popular as it once was, and there's growing interest in greener vehicles. The company aims to launch multiple electric motorcycles under the LiveWire nameplate, starting with LiveWire ONE, a $21,999 bike with approximately 145 miles of range. Its first model, launched back in 2019, also did not require a clutch or gear shifting, simplifying the operation for new riders. In an accompanying investor presentation, LiveWire forecast sales volumes of 100,961 electric bikes by 2026. The latest deal is also expected to raise $545M, including a PIPE of $100M from Harley and a similar amount from Taiwan-based power sports manufacturer KYMCO. LiveWire hopes to benefit from at-scale manufacturing, as well as distribution capabilities from Harley and KYMCO, and will also loop in STACYC (a kids electric bike company) into the operation. Outlook: "If anything this underlines what we've been saying for a long time. Detroit, wake up! The train has left the station! EVs are inevitable," Roth Capital analyst Craig Irwin declared. "Many traditional OEMs with emerging EV businesses can obviously do similar spinoff transactions." While the electric vehicle SPAC frenzy has seen some successes, like Rivian (RIVN) and Lucid Motors (LCID), others have hit some speed bumps after going public, such as Lordstown (RIDE), Canoo (GOEV), and Nikola (NKLA). (6 comments)       Central Banking Line of attack Central banks across the globe are taking divergent approaches to confronting inflation at the same time as trying to broaden out their pandemic recoveries. Federal Reserve: Chair Jay Powell already retired the "transitory" idea at the last FOMC gathering, and started emphasizing the other side of his dual mandate = "stable prices" over "maximum employment." At the Fed meeting this week, the central bank said the pace of tapering will be doubled to $30B a month - with further reductions coming next year - while interest rate projections were updated to show a median forecast of three hikes in 2022. It was the Fed's most hawkish policy pivot in years and investors eyed similar developments from other institutions. Bank of England: On Thursday, officials on the central bank's Monetary Policy Committee unexpectedly voted eight to one to lift the policy rate to 0.25% from a record low of 0.1%. While a hike had been telegraphed, many had expected the BOE to hold steady until early next year to see if inflation would ease up and the effects of Omicron became clearer. "Monetary policy cannot solve supply-side problems," Bank of England Governor Andrew Bailey declared, "but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations." European Central Bank: "I don't think that something happening at the Fed is bound to happen [in Europe]," ECB President Christine Lagarde told a news conference. While the bank is ending its €1.85T pandemic emergency purchase program (PEPP) as planned in March, it gave itself flexibility by expanding a separate bond-buying program next year. It also said it wouldn't increase its key interest rate until it ends its net bond purchases, meaning a "very unlikely" hike in 2022.

Others: The Bank of Japan made no changes to its ultra-loose policy, but confirmed plans to scale back its emergency economic support program by March 2022. The Norges Bank raised its interest rate for the second time since September, and flagged another increase in March, after becoming one of the first central banks to hike rates since the start of the pandemic. Meanwhile, the Swiss National Bank kept interest rates at a record low of -0.75% and stuck to its description of the franc as "highly valued" following the currency's latest advance against the euro.

     

IPOs

WallStreetBets goes to Wall Street

Online message board Reddit (REDDIT) confidentially filed to go public, submitting a draft registration statement with the SEC. Not too many other details were disclosed, like how many shares would be offered or the price range for the proposed listing. As for the timing, Reddit said the IPO is "expected to occur after the SEC completes its review process, subject to market and other conditions."

Backdrop: Reddit was created in 2005 and Conde Nast Publications acquired the platform in 2006. It remained a part of the mass media company until it was made an independent subsidiary in 2011, and since then, Reddit has raised a series of funding rounds from venture capital firms. The most recent one came in August, when it raised $700M at a valuation of more than $10B (up from the $6B valuation recorded six months prior).

The shift to public markets will be interesting as Reddit looks to build on the attention it gained at the start of the year when the platform became a force on Wall Street. Its r/WallStreetBets forum transformed into a hot spot for retail traders who rallied around GameStop (GME), and coordinating their buying to drive up the prices of other stocks. The meme trading frenzy brought in millions of new users, as well as new advertisers, the source of the bulk of the company's revenue. In fact, Reddit reached $100M in advertising revenue during Q2 of 2021, up 192% from the previous year.

Go deeper: Over 900 companies have gone public in 2021, raising nearly $300B in 2021, including high-profile names like Affirm (AFRM), Robinhood (HOOD) and Rivian Automotive (RIVN). Reddit's IPO will come at the tail end of the banner year and CEO Steve Huffman hopes a lot of retail investors will participate in the listing. The message board platform, known for its "anything goes" ethos, had roughly 52M daily active users and over 100K communities, or "sub-reddits," as of October 2020. (5 comments)

     

Covid

mRNA wins out

A 15-member advisory panel of the Centers for Disease Control and Prevention voted unanimously that messenger-RNA-based COVID-19 vaccines from Pfizer-BioNTech (PFE, BNTX) and Moderna (MRNA) should be the preferred over the shot from Johnson & Johnson (JNJ). In recommending the move, the panelists cited rare but serious blood clots linked to the vector-based COVID shot from J&J. While there were nine confirmed deaths due to rare clotting events following immunization with the latter's jab, mRNA-based shots were more effective and posed no such risk.

Backdrop: After a brief pause in its use amid clotting concerns, U.S. regulators allowed the resumption of J&J's single-dose shot in late April. The company maintains that its COVID-19 vaccine still remains an important option for many individuals, especially those in low- and middle-income countries. The shot also "remains an important choice in the U.S. for people who can't or won't return for multiple vaccinations or who would remain unvaccinated without an alternative to the mRNA vaccines."

It's important to note that the advisory committees of the CDC only issue non-binding recommendations, but the federal agency usually follows them for a final decision. More than 200M Americans are considered fully vaccinated, including about 16M who got the J&J shot. Earlier this week, White House chief medical advisor Dr. Anthony Fauci said a booster is "your best chance to fight Omricon, but at this point, there is no need for a 'variant-specific' booster." 

How they work: Messenger RNA vaccines use genetically engineered mRNA to give your cells instructions for how to make the S protein found on the surface of the COVID-19 virus. After vaccination, lipid nanoparticles prompt your immune cells to begin making the protein pieces and displaying them on cell surfaces, causing your body to produce antibodies. Viral vector vaccines use a different carrier, employing a human adenovirus with a COVID spike protein DNA code (actual viral material) that sets off an immune response against the coronavirus. (35 comments)

     

U.S. Indices
Dow -1.7% to 35,365. S&P 500 -1.9% to 4,621. Nasdaq -3.% to 15,170. Russell 2000 -1.9% to 2,170. CBOE Volatility Index +15.4% to 21.57.

S&P 500 Sectors
Consumer Staples +1.2%. Utilities +1.2%. Financials -1.3%. Telecom -1.3%. Healthcare +2.5%. Industrials -2.8%. Information Technology -4.%. Materials -0.8%. Energy -5.1%. Consumer Discretionary -4.3%.

World Indices
London -0.3% to 7,270. France -0.9% to 6,927. Germany -0.6% to 15,532. Japan +0.4% to 28,546. China -0.9% to 3,632. Hong Kong -3.4% to 23,193. India -3.% to 57,012.

Commodities and Bonds
Crude Oil WTI -1.9% to $70.3/bbl. Gold +0.8% to $1,798.4/oz. Natural Gas -6.5% to 3.671. Ten-Year Treasury Yield +0.6% to 131.14.

Forex and Cryptos
EUR/USD -0.63%. USD/JPY +0.26%. GBP/USD -0.22%. Bitcoin -6.3%. Litecoin -7.%. Ethereum -4.9%. Ripple -3.9%.

Top Stock Gainers
Galera Therapeutics Inc (NASDAQ:GRTX) +118%. Spruce Biosciences Inc (NASDAQ:SPRB) +100%. Arena Pharmaceuticals (NASDAQ:ARNA) +84%. Genfit S.A. ADR (NASDAQ:GNFT) +67%. Foghorn Therapeutics Inc (NASDAQ:FHTX) +59%.

Top Stock Losers
Nisun Int Ent Dev Grp Ltd (NISN) -72%. Adagio Therapeutics Inc (NASDAQ:ADGI) -65%. Cabaletta Bio Inc (NASDAQ:CABA) -65%. Terawulf Inc (NASDAQ:WULF) -62%. Generation Bio CO (NASDAQ:GBIO) -50%.

Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.

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