The Week's Top Stories is a guided tour through the biggest market stories of the week, from winning stocks to brutal dips to the facts and forecasts generating buzz on Wall Street.
MUSK'S TWITTER TAKEOVER BID
Just when it looked like Elon Musk's effort to shake up his favorite social media platform was over, the Tesla CEO upped the ante. Regulatory filings have revealed that Musk made an unsolicited offer to buy Twitter for 54.20 per share, or about $43 billion. Twitter CEO Parag Agrawal said the company was evaluating the deal, as employees reportedly expressed concerns about a potential takeover. Musk, meanwhile, said this was his "best and final" offer, but hinted during a TED Talk that he had a "Plan B." Twitter's board is going with a "poison pill defense" to try to rebuff the acquisition bid. For what it's worth, Twitter's stock dropped nearly 5 percent this week, as shareholders, like us, try to suss out the situation.
In related news:
- Vanguard Group actually surpassed Musk as the biggest shareholder of Twitter.
- And unfortunately for employees, Musk's bid also came right in the middle of "focus week," when the company cuts down on meetings so that workers can concentrate on their projects — something they likely struggled to do after the world's most impulsive billionaire threatened to buy their employer.
SHOPIFY STOCK SPLIT
Stock splits are shaping up to become one of the biggest stock market trends of 2022. Following the lead of companies such as Alphabet, Amazon, Tesla, and GameStop, Canada-based e-commerce company Shopify has announced a 10-for-1 split. This is the first split for the company since the company went public in 2015 and began a meteoric rise that capped out at nearly $1,700 per share in late 2021. The stock has plummeted this year amid concerns that the online retailer would take a hit post-pandemic. In addition to splitting the stock, the deal contains an unorthodox provision that would give founder and CEO Tobi Lütke more voting power on the board, which some analysts see as a play to fend off potential acquisitions. Two-thirds of Class A and B shareholders still have to approve the split, however.
Something to keep in mind:
- Whatever Lütke's ultimate intentions for giving himself more voting power, the executive certainly seems committed to making Shopify successful long-term. Lütke has long said that he has a "100-year growth vision" for the company.
As Madonna once belted out, we live in a material world, and the companies that deal in metals, fossil fuels, and transportation excelled this week. Peabody Energy Corporation (coal) was up 18 percent over the last five days, as a European ban on Russian coal took effect. HighPeak Energy (oil and gas) was up 40 percent this week, and Tellurian (natural gas) shot up 10 percent amid rising global demand for liquified natural gas. Allegheny Technologies and Century Aluminum (metals) were up around 5 percent, and Golden Ocean Group and Star Bulk Carriers (transportation) were up 15 percent and 8.5 percent respectively. As Goldman Sachs economist Jeff Currie noted on the Odd Lots podcast this week, the old economy of physical stuff is making a financial comeback after a decade of investors favoring "capital light" tech companies. However, the resurgence has come with some volatility and chaotic trading, which is starting to spill over into the "real world."
Adding to the uncertainty:
- Russian President Vladimir Putin said Europe doesn't have an alternative to Russian gas, and signaled that the company would begin shifting its supply eastward.
BANKS TOOK A BEATING
A slew of big banks released their first-quarter earnings this week, and the results were positively gloomy. JPMorgan's profits fell 42 percent; Morgan Stanley's dropped 11 percent; Citi's dropped 46 percent; Wells Fargo's fell 21 percent, and Goldman Sachs' fell 42 percent. The banks almost unanimously blamed the war in Ukraine. Don't feel too bad though: The rough-and-tumble first quarter marked the end of one of the longest bull runs in history, during which big banks profited immensely. What's arguably more concerning is that many of the banks are predicting more economic headwinds on the horizon.
The consumer price index was up 8.5 percent year-over-year in March, the highest reading since 1981. Usually, this news might have been a drag on markets, but this week investors read between the lines. Because core inflation (which cuts out volatile food and energy costs) increased more slowly than in February, bond investors saw this as a sign that inflation had peaked and would now begin to trend back downward. We'll see if that plays out, but in the meantime, Americans are feeling the pinch. Gasoline prices alone were up 18.3 percent in March, contributing half of the total increase for the month.
MAKES YOU THINK
While we here at Cheddar use the words "investor" and "shareholder" interchangeably, there's an argument that the two are actually very different. Over at The Law and Political Economy Project, Lenore Palladino made the case that shareholders are rarely "investors" in a company, in that they don't really care one way or another how the company operates or what it does. They just want the stock price to go up so that their portfolios grow. She said this has all kinds of implications for how we think about the idea of "shareholder primacy" (i.e. a company basing all of its decisions on pleasing shareholders). Here's a sample:
"While “shareholder” and 'investor' are, of course, just words, there are real stakes to clarifying the nature of the relationship between shareholding and investment. The perspective of shareholders as the most important actor in corporate decision-making drives economic inequality and the racial wealth gap, as it perpetuates the myth of shareholder primacy — and along with it, the idea that corporations should prioritize spending billions on stock buybacks and dividends in order to reward this most deserving group of its stakeholders."