Dow Jones Today

The fall of the Dow Jones today makes investors nervous

The broad market index set its 53rd record high on Thursday, despite the fact that the delta variant of Covid-19 has slowed economic recovery and roiled global supply chains.

According to a Bank of America note, this places 2021 as the fifth-highest year in the past century in terms of record highs, with four months remaining.

The list includes some of the most well-known years in market history, but for reasons that may make bullish investors nervous. Many of the years with dozens of record highs have included or preceded the most severe market crashes in history.

The bleak entries include 1929 and 1987, when two of the worst sell-offs in financial history occurred, as well as 1928 and 1998, when major declines were predicted.

To be sure, many Wall Street analysts predict that the market will rise over the next year. 

But there are reasons to be concerned, according to Hartnett, who cites the “risk of Fed-induced bubble continuing to grow in the absence of >1 million payrolls & >$3 trillion Democratic reconciliation fiscal package.”

The SPAC boom is over

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According to an analysis of SPAC Research data, 125 blank-check deals closed their mergers in 2021, with 58 percent of them currently trading below $10 and more than a third having had more than 50 percent of their public shares redeemed.

In a note, Paul Hickey, co-founder of Bespoke Investment Group, said, “The SPAC boom has ended.” “With so many deal teams chasing targets, the types of acquisitions that are now being made are far less appealing, and price declines for post-transaction SPAC companies have made it more difficult to keep the hype train rolling.”

SPACs are special purpose acquisition companies that raise capital through an IPO and use the proceeds to merge with a private company and take it public within two years.

Ensysce Biosciences, a biopharmaceutical company fighting drug overdoses, has been the worst-performing SPAC this year, with a stock price of around $3 per share. This company previously merged with Leisure Acquisition Corp., a SPAC that initially targeted a leisure company but shifted its focus as the deal-making environment became competitive.

Many on Wall Street predicted the sharp reversal because the industry had grown too far, too fast in a speculative market. According to Bespoke Investment Group data, the SPAC market saw 89 new deals with $28.6 billion in capital raised per month during the record first quarter, but that number has now dropped to just 9 deals per month with $1.6 billion in funds since April.

“The SPAC issuance boom was never sustainable, and it appears that financial reality has set in,” Hickey said.

The SEC settled with Momentus, a space company taken public by SPAC Stable Road Acquisition, in July after charging the parties involved with making misleading disclosures prior to the merger. Stable Road was originally looking to merge with a cannabis company.

Last month, plaintiffs filed a lawsuit against Bill Ackman’s troubled SPAC, alleging that the blank-check company promised “staggering compensation”.

Meanwhile, SPACs are being hit by an increasing number of class-action lawsuits as shareholders seek to hold deal leaders accountable in the face of sharp stock price declines.

Goldman cuts GDP forecast

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The firm reduced its fourth-quarter GDP growth forecast to 5.5 percent, down from 6.5 percent previously. Goldman expects annual growth of 5.7 percent in 2021, which is lower than the 6.2 percent expected by other firms.

“However, the hurdle for strong consumption growth going forward appears much higher: the Delta variant is already weighing on Q3 growth, and fading fiscal stimulus and a slower service sector recovery will both be medium-term headwinds,” Goldman’s Ronnie Walker wrote in a note to clients Monday evening.

While the rise of the delta variant has harmed consumer spending, Goldman economists believe the impact will be short-lived if case numbers in the United States begin to fall in line with the wave in Europe and other areas.

The fourth quarter will see less fiscal stimulus as the federal enhanced unemployment benefit has now expired, as well as a shift in spending patterns following the initial recovery boom earlier this year.

“Goods spending is expected to continue falling, though delayed purchases due to shortages of items such as new cars should slow the decline. 

In an accompanying note, Goldman’s chief economist, Jan Hatzius, stated that while the slowing economic recovery raises more questions for the Federal Reserve, it should not change the central bank’s decision on when to slow asset purchases.

Robert Beno

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