Table of Contents
Markets staged an astonishing turnaround on Thursday, given the circumstances.
Dow Jones Industrial Average
was 850 points lower at one point early in the day, after Russia launched an invasion of Ukraine, but managed to close 92 points up.
comeback was even more remarkable, turning a 3.5% loss, and a brief fall into bear market territory, into a 3.3% gain.
The last time the index was down more than 3% at its low but closed more than 3% higher was in November 2008, according to Dow Jones Market Data.
While there was an element of dip-buying, particularly in tech stocks, relief the sanctions imposed by the U.S. and its allies on Russia were less punitive than expected was key to the rebound.
Neither President Joe Biden nor the European Union opted to kick Russia out of the Swift global payment network. That isn’t to say they won’t eventually—for now it’s a sanction the West holds up its sleeve.
There were also no sanctions aimed at Russian oil and gas—although the EU did announce a ban on exports needed to upgrade the country’s oil refineries early Friday.
Oil prices have cooled after topping $100 a barrel on Thursday, which will ease investors’ concerns over inflation and aggressive rate increases by the Federal Reserve.
The threat and ultimately the fear of sanctions appeared to be the driver behind the market’s initial slump, with relief causing the subsequent rally.
The problem for markets is that the crisis in Ukraine is only worsening and the current round of sanctions is unlikely to be the last. The volatility is just beginning.
*** Join Barron’s senior writer Lisa Beilfuss today at noon as she discusses changing monetary policy with regional Federal Reserve president Loretta Mester. Sign up here.
U.S. Responds to Russia’s Ukraine Invasion With More Sanctions
Biden announced a series of additional sanctions on Russia after its invasion of Ukraine, including freezing Russian assets in the U.S. and restricting activities for large Russian banks, including the country’s two largest,
- The U.S. also will restrict exports of military items and sensitive technology that is crucial to Russia’s defense, including semiconductors, telecommunication, encryption securities, lasers, sensors, avionics, and maritime technology.
- Biden told reporters Thursday that sanctions could cut off more than half of Russia’s high-tech imports and hamper Russia’s efforts to modernize its military and aerospace industry.
- Biden stopped short of cutting Russia off from Swift, the Belgium-based messaging cooperative that links global banks. Some European allies didn’t agree to it. Severing the world’s 12th-largest economy from the financial system could harm Western business and benefit China, The Wall Street Journal reported.
- Russia and China have been working on their own alternative to Swift. China’s Cross-Border Inter-Bank Payments System would enable the two countries, which share a 2,600-mile border, to bypass Swift, the Journal reported.
What’s Next: The U.S. also sanctioned several oligarchs who are close to Russian President Vladimir Putin and expanded bans on new sovereign debt to include a prohibition on trading equity in several of the country’s largest companies.
Moderna Sees Fourth Covid-19 Vaccine Dose This Fall
Moderna’s chief medical officer, Dr. Paul Burton, told investors the company “firmly” believes a fourth Covid-19 vaccine dose will be needed by the fall of 2022 to protect against waning vaccine effectiveness. He said the boosters would need to protect specifically against the Omicron and Delta coronavirus variants.
- Moderna’s president, Dr. Stephen Hoge, said the company is testing different boosters for the fall, including combining its original vaccine with an Omicron-specific formula. Moderna is also developing new vaccines to prevent herpes and shingles and is working on a cancer vaccine.
- Moderna reported $18.5 billion in revenue and net income of $12.2 billion in 2021. The company delivered 807 million doses of its Covid-19 vaccine, and said its share of the U.S. booster market grew to 45% in February, from 27% in October.
- Company executives said coronavirus will become an endemic, seasonal virus in 2023 and beyond. Moderna has signed $19 billion in advanced purchase agreements for 2022, and said it’s in “numerous discussions” with governments for late 2022 and 2023.
- Starting today, Los Angeles County gyms, bars, restaurants, salons, and offices can allow fully vaccinated customers ages 5 and older to drop their masks indoors, with verification they are fully vaccinated or have recently tested negative. Unvaccinated people must keep wearing masks.
What’s Next: The Biden administration is expected to announce significant changes to its federal mask-wearing guidelines today, revised recommendations that mean most people will no longer have to wear masks in indoor public settings, the Associated Press reported, citing sources familiar with the matter.
—Josh Nathan-Kazis and Janet H. Cho
Morgan Stanley Confirms Federal Probes of Block-Trading Business
Morgan Stanley confirmed that federal investigators have been probing the investment bank’s block-trading business. The investment bank said in a regulatory filing that since June 2019 it has been responding to requests for information from the Securities and Exchange Commission. It also said that beginning in August 2021 it has been responding to requests for information from the U.S. Attorney’s Office for the Southern District of New York.
- Federal investigators sent subpoenas to several Wall Street banks, including Morgan Stanley and several hedge funds, in a probe of block trading, The Wall Street Journal reported last week.
- The Journal reported that the SEC sent subpoenas to the firms in its examination of whether bankers might have improperly tipped hedge fund clients ahead of large share sales. The Journal’s report cited people familiar with the situation.
- Morgan Stanley was the most active bank in block trades last year, leading more than a quarter of the deals by value and earning more than $300 million in fees, according to data from Dealogic.
What’s Next: The bank said it was cooperating with the federal investigations. The opening of the probes or the issuance of subpoenas doesn’t mean charges will be brought against any of the firms.
SEC Investigating Stock Sales by Elon Musk, His Brother
The Securities and Exchange Commission is investigating whether
Tesla CEO Elon Musk and his brother, Kimbal Musk, may have violated insider trading rules with their sales of Tesla stock, The Wall Street Journal reported, citing people familiar with the matter.
The agency is looking into Kimbal Musk’s sale of 88,500 shares of Tesla shares valued at $108 million the day before Elon Musk polled his
Twitter followers on Nov. 6, asking if he should sell 10% of his stake in the electric-vehicle company.
- Tesla representatives weren’t immediately available to comment, and neither was a lawyer for Elon Musk, Barron’s reported. An SEC representative declined to comment. A lawyer for Tesla and Musk has accused the SEC of harassing him with “serial investigations,” claims that the SEC has rejected.
- After 58% of the more than 3.5 million who responded to the tweet voted that he should sell, Tesla’s stock value fell sharply. Elon Musk said that selling his shares would cover taxes he would need to pay if lawmakers enacted new taxes on unrealized capital gains.
- Insider trading rules prohibit employees and board members of public companies from trading on material information that isn’t public. It is unclear if Kimbal Musk, who serves on Tesla’s board, knew about his brother’s tweet before selling his shares.
What’s Next: Elon Musk’s tweets about the SEC, including that he “didn’t start the fight, but I will finish it,” have unnerved investors, according to Wedbush analyst Dan Ives, who told Barron’s the moves amid an escalating conflict in Ukraine has made “investor angst very high.”
—Janet H. Cho
SPACs Hunt for Deals With Precious Time to Spare
Time is precious for hundreds of special-purpose acquisition companies, or SPACs, formed in a hot market in 2020. They are still hunting for acquisitions, including Bill Ackman’s $4 billion
Pershing Square Tontine Holdings, and could be forced to return investor money if they can’t find one.
- About 602 SPACs with a combined $162.4 billion in funds currently are on the hunt, according to data from SPAC Research. The class of 2020 includes 247 SPACs, and just 58% have found and closed acquisitions, Barron’s analysis found. Deals are pending for 33.
- SPACs raise money through an initial public offering with the goal of merging with a private company. The IPO money earns interest in a trust until a merger closes. If the SPAC can’t find a deal within a specific period, typically two years, the money is returned to investors.
- Retail investors buy shares when a SPAC starts trading, usually at $10 each. But some SPACs that haven’t found mergers are trading below $10, presenting an opportunity because investors can redeem the shares for $10 each at the time when a potential merger is voted on, before it’s completed.
Ackman’s SPAC canceled plans to buy 10% of
Universal Music Group last July. It has until July 24 to close another merger, or until Jan. 24, 2023, with a letter of intent or agreement in principle with a business. Pershing declined to comment.
What’s Next: Hundreds of expiring SPACs “would be good for surviving SPACs, because there will be less competition for them to find acquisitions,” said Evan Ratner, president of Levin Capital Strategies.
—Luisa Beltran and Janet H. Cho
Do you remember this week’s news? Take our quiz below about this week’s news. Tell us how you did in an email to [email protected].
1. The S&P 500 marked its 33rd correction, or 20% drop from recent highs, since 1980. According to LPL Financial, the index is higher 90% of the time one year later with an average gain of nearly:
2. Which city, among the nation’s 50 largest metros, has seen the most job growth since the end of 2019, according to the Economic Innovation Group?
d. New Orleans
3. Which automotive parts manufacturer will be taken private by Apollo Global Management in a deal valued at $7.1 billion, including debt?
d. None of the above
4. Brent oil, the global benchmark, topped $100 a barrel this week. When was the last time crude traded above $100 per barrel?
5. Biden imposed additional sanctions on Russia on Thursday in response to Russia’s invasion of Ukraine. Which sanction wasn’t included:
a. Imposing correspondent and payable-through account sanctions to Sberbank
b. Imposing full blocking sanctions on four other major Russian banks
c. Freezing the assets of Russian elites and their families
d. Ending Russia’s use of the Swift international payments system
—Newsletter edited by Liz Moyer, Camilla Imperiali, Rupert Steiner