Wall Street Breakfast: What Moved the Markets

The S&P 500 (SP500) on Friday ended the week down 2.1% amid renewed fears that the economy will plunge into recession next year as major central banks may not yet ease rate hikes. The benchmark index posted losses in three of five sessions, and hopes of a Santa rebound this year were quickly dashed. The major indices posted a second straight week of losses with the Dow down 1.7% and the Nasdaq down 2.7%. The week featured the Federal Reserve, European Central Bank and Bank of England all turning more aggressive as inflation remains stubbornly high. Of note, San Francisco Fed President Mary Daly said the Fed still has a “long way to go” to bring inflation down to 2%. Trading was especially volatile on Friday with $2.6 trillion in options expiring as part of the triple witching day. Get a preview of next week’s major events that could rock stock prices at Looking for Alpha’s Catalyst watch.

M&A spree

Looking for a new drug in development and some successful treatments, Amgen (AMGN) agreed on Monday to acquire Horizon Therapeutics (HZNP) for $116.50 per share in cash. That will value the Ireland-based company at almost $27.8 billion on a fully diluted basis, and almost $28.3 billion including debt. Horizon is a biotech focused on rare autoimmune and inflammatory diseases, with revenue generators like Tepezza, Krystexxa and Uplizna adding $2 billion in sales for the company in the first nine months of the year.

Background: Amgen was the last of three bidders in an auction for Horizon that included Johnson & Johnson (JNJ) and Sanofi (CUT). Every drugmaker is looking to restock their pipelines, but no one is getting as aggressive as Amgen. He faces one of the largest patent expiration backlogs in the industry, prompting a serious buying spree in the past two years.

In the summer, Amgen signed a $3.7 billion purchase of ChemoCentryx to increase its presence of inflammatory diseases. Last year, the company acquired oncology player Five Prime Therapeutics for $1.9 billion and antibody drug specialist Teneobio for nearly $1 billion, as well as smaller purchases such as tissue regeneration expert Rodeo Therapeutics for $55 million. .

Market movement: Horizon Therapeutics Stock shot up 14% in the news, while Amgen stock fell 3%. The latter expects to use cash on hand and debt to fund the deal, which is expected to close in the first half of 2023 and accrue to non-GAAP income and earnings per share beginning in 2024. However, Amgen did not update 2022 or 2030 orientation as a result of the transaction. (20 comments)

Fusion Revolution

Investors on Tuesday saw an announcement from the US Department of Energy that could change the way we power our world. A major milestone has been achieved at the Lawrence Livermore Laboratory in California, which is based on fusion technology. That’s the same process that powers the sun and stars, and could eventually lead to an unlimited source of cheap, clean energy.

Snapshot: The breakthrough, known as the net energy gain (or target gain), means that more energy was produced from a fusion reaction than it consumed. The scientists produced the effect with the world’s largest laser using an approach known as magnetic confinement fusion. A small amount of hydrogen plasma, held by powerful magnets, was heated to extreme temperatures, resulting in the fusion of atomic nuclei and 20% more energy than used in lasers.

“If this is confirmed, we are witnessing a moment in history,” said plasma physicist Dr. Arthur Turrell. “Scientists have struggled to show that fusion can release more energy than is generated since the 1950s, and the Lawrence Livermore researchers seem to have crushed this decades-old goal for good.”

Panorama: While things are still in the early stages, the trick will be to make the process self-sufficient, harnessing enough energy to power the infrastructure, and doing it continuously. Fusion also doesn’t have all the radioactive waste associated with current fission-using reactors, and has the potential to easily outperform other clean energy sources like solar and wind in terms of output. Fusion supporters say the technology could be commercialized in a decade or more, but many are more skeptical of that timeline, saying there is too much hype by companies seeking government subsidies and private investment. (151 comments)

A long way to go

As widely expected, the Federal Open Market Committee raised its policy rate by 50 basis points to 4.25%-4.50% on Wednesday, as it pared 75bp increases from its previous four meetings. While that would appear to be a win for investors, the so-called “dot chart” was more worrisome. The Fed’s policymakers’ median projection now sees the federal funds target range rising to 5.1% next year, a level last seen in 2007, compared with 4.6% in the Central bank September projection.

Appointment: “We need to be honest with ourselves that there is inflation. 12-month core inflation is 6% CPI. That’s three times our 2% target. Now it’s good to see progress, but let’s understand we have a long way to go to get back to price stability,” Fed Chairman Jerome Powell said during a news conference. “I don’t think anyone knows whether or not we’re going to have a recession, and if we do, whether or not it’s going to be deep. It’s just that you can’t tell… The historical record strongly advises against easing policy prematurely. We’ll keep course, until the job is done.

All three major US stock indexes fell after the announcement, erasing gains from earlier in the session. liquidation accelerated on Thursday, as the ECB and BoE raised rates, and whispers of a recession turned to screams. Rate hikes are tricky in the sense that policymakers may not know for a year whether they have tightened too much or not enough (economists call these effects long, variable lags).

Commentary: “The Federal Reserve’s decision to slow rate hikes to 50bp marks the beginning of the end of this rate hike cycle,” said Ahan Vashi, a contributor to SA. “However, a reduction in the pace of rate hikes is not a pivot, and the Fed’s quantitative tightening program is likely to continue for the foreseeable future. With the Fed tightening on a yield curve of “With deeply invested cash, the near-term environment should be risk-off. Therefore, equity markets could experience increased volatility in the coming weeks.” (256 comments)

famous to infamous

Sam Bankman-Fried’s fall from grace could end with jail time. The founder and former CEO of FTX was arrested in the Bahamas this week after the US filed criminal charges against the once superstar of the crypto world (and requested her extradition). The charges include wire fraud, wire fraud conspiracy, commodity fraud, securities fraud, securities fraud conspiracy, money laundering and violations of campaign finance laws.

Interesting moment: Just before his arrest, SBF was scheduled to testify before the House Financial Services Committee about the fall of FTX, which was once worth some $32 billion before it imploded. More information is still needed, but all clues point to bad bets made by SBF’s hedge fund, Alameda Research, which used FTX client deposits for high-risk trades. Massive withdrawals from FTX took place as reports of its financial health emerged, although to date, SBF has denied any prior knowledge of the situation or having lent FTX client deposits to fund Alameda’s activities.

Later, John J. Ray III, the new CEO of FTX, revealed some details during his testimony on Capitol Hill. “We are continuing our strenuous forensic efforts to account for all assets.” said Ray, who has more than 40 years of legal and restructuring experience, including overseeing Enron’s high-profile bankruptcy in 2001. “The collapse of the FTX Group appears to stem from the absolute concentration of control in the hands of a very small group of highly inexperienced individuals and unsophisticated individuals who have implemented virtually none of the systems or controls that are necessary for a business entrusted with other people’s money or assets.”

civil action: In addition to the criminal charges, SBF faces separate charges from the Securities and Exchange Commission for violations of securities laws. The Commodity Futures Trading Commission has filed another civil action, and state banking regulators may also get involved. “I had considered myself a model CEO, who would not get lazy or disengaged. Which made it that much more destructive when I did,” SBF wrote in its last tweet before his arrest. “I’m sorry. I hope people can learn from the difference between who I was and who I could have been.” (276 comments)

World Cup Economics

The 2022 World Cup in Qatar has proven to be the most controversial to date, but many parties are taking advantage of the benefits offered by the competition. There have been a number of upsets at the tournament this year, making for even more exposure when it comes to looking at the numbers, with France taking on Argentina in the final match on Sunday. Based on historical growth trends, around 1.5 billion people are expected to watch the championship match worldwide, representing nearly one-fifth of all humans living on Earth.

Bottom line: That’s a great platform to spread your message. In terms of cash, the host countries do not profit from the games, although it increases their position on the world stage and casts soft power as a good place to do business. Advertisers, on the other hand, hope to ring the record in their marketing efforts, with commercials, jerseys and stadium banners all seen by billions of eyes. Affiliate sponsors this year include Adidas (OTCQX:ADDYY), Budweiser (OUTBREAK), Coca Cola (IS), Hyundai (OTCPK:HYMPY), McDonald’s (dcm) and Visa (V).

“If they really feel strong about it, then they could pull out of those markets,” said Kieran Maguire of the University of Liverpool, when asked about trade deals despite controversy over Qatar’s treatment of migrant workers and the LGBT community, the restriction of political rights. expression and bribery claims to organize the tournament. “We had the 2018 World Cup in Russia, and remember, Russia had invaded and annexed Crimea in 2014, but that didn’t stop any of the sponsors from getting involved.”

A little exaggerated? Some claim that the country of the World Cup champion may see GDP growth percentage points after the event due to increased international visibility. However, the links to exports and trade are difficult to assess and can also be affected by external factors or trends in the world economy.

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