Markets Probably Aren’t Done Convulsing. This Crypto Coaster Is Far From Over.

0
8

Stocks and cryptocurrencies seemed to pause to collect their breath late Thursday.

Tether, the stablecoin linked to the dollar that also acts as the gateway to the rest of the crypto universe, recovered its peg after briefly losing it. Crypto buyers were reassured after Chief Technology Officer Paolo Ardoino said Tether had reduced its exposure to commercial paper and that a quarterly update of its reserves would be available later this month.

Don’t expect this calm to last. Federal Reserve Chair Jerome Powell, as he was confirmed for another term, sounded less confident than ever that increasing rates will lead to a soft landing.

That means more turbulence for stocks and their even more volatile cousins in crypto. Tether is used as a medium of exchange when trading other digital assets, much like a money-market fund or bank deposits. If confidence in it falters, lots of digital assets could seize up.

And Tether’s record on disclosing what it does with the dollars it collects is less than stellar. It might not take much prodding to test whether it can withstand a run similar to what happened to TerraUSD.

Keep a wary eye on exchanges. Anyone who remembers the start of the 2008 financial crisis knows the importance of liquidity when sentiment is tanking. Hiccups at


Coinbase
don’t inspire confidence and serve as another reminder that the crypto universe is almost completely unregulated—there are no guardrails, the government doesn’t have investors’ backs.

Things may still turn out OK—crypto has seen big gyrations before. But there are also signs that investors should brace for the start of another financial storm.

Brian Swint

*** Join the Barron’s ‘Help for Caregivers: Navigating Longevity, Dementia, Elder Care’ event today at 1 p.m. Amy Goyer, family and caregiving expert for AARP, will talk about resources available to caregivers, what to expect when caring for someone with Alzheimer’s disease, and tips for navigating the long-term care system. Sign up here.

***

Twitter Tumbles as Musk Says Takeover ‘Temporarily on Hold’


Tesla
CEO Elon Musk said his $44 billion buyout offer for


Twitter
is on hold. He tweeted Friday that the deal is “temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users.”

  • Musk has said several times removing spammers and bots is important to increasing Twitter’s value. If fake accounts represent more of Twitter’s registered users than he originally believed, Musk may want to renegotiate his price. Twitter and Musk didn’t immediately respond to a request for comment. Twitter stock fell around 17% in the premarket.

  • Separately, Twitter will freeze hiring and examine ways to cut costs as global economic upheaval and the Russia-Ukraine war have disrupted digital advertising. The company had also confirmed the departures of Bruce Falck, general manager of revenue, and Kayvon Beykpour, general manager of consumer product.

  • CEO Parag Agrawal said in a memo reviewed by The Wall Street Journal that Twitter would pause hiring except for critical business roles. Other tech companies are also slowing hiring or cutting staff, including Facebook’s


    Meta Platforms,


    Carvana,
    and


    Robinhood Markets.

What’s Next: Twitter is reviewing all extended offers to determine if any should be withdrawn, but Agrawal told employees Twitter isn’t planning company wide layoffs. “We are pulling back on nonlabor costs to ensure we are being responsible and efficient,” a spokesperson told Barron’s.

Al Root and Rupert Steiner

***

Powell Warns That Soft Landing ‘Won’t Be Easy’

Federal Reserve Chair Jerome Powell warned on Thursday that getting inflation under control could cause some pain and that the ability to execute a soft landing could depend on factors out of its control. “No one here thinks that will be easy,” he said.

  • Powell told NPR’s Marketplace that getting back to 2% inflation while keeping the labor market strong—the soft landing he wants—and avoiding a recession would be “quite challenging.” He said in hindsight, “it probably would have been better for us to have raised rates a little sooner.”

  • The Senate confirmed Powell to a second term as Federal Reserve Chairman in a 80-19 vote, keeping him in the leadership seat as inflation runs at its highest rate in four decades. The Fed has twice raised interest rates this year, and more increases are expected.

  • At the last Federal Open Market Committee meeting, Powell said they “weren’t actively considering” a three-quarters of a percentage point increase in the federal-funds rate. But on Thursday he clarified that if the economy fares “worse than we expect, then we’re prepared to do more.”

  • “We fully understand and appreciate how painful inflation is, and that we have the tools and the resolve to get it down to 2%,” Powell said. Although that process could be painful, the most painful thing would be failing to address it and undergoing “a much deeper downturn.”

What’s Next: Michael Barr, a former Treasury Department official, dean of the University of Michigan’s Ford School of Public Policy, and President Joe Biden’s nominee for the Fed’s vice chair of bank supervision, its top banking regulator, faces his Senate confirmation hearing on May 19.

Janet H. Cho

***

Infant-Formula Shortage Could Last Months, Manufacturers Say

The Biden administration announced measures to alleviate a national infant-formula shortage, including urging states to let families use their federal Women, Infants and Children benefits on a wider range of brands. But manufacturers and retailers say it could take months before supplies are back to normal.

  • The Food and Drug Administration in February warned consumers not to use certain powdered infant formulas made at


    Abbott Laboratories
    ’ manufacturing plant in Sturgis, Mich. The FDA investigated after four babies became sick with bacterial infections and two died.

  • That factory was a key supplier—and in some cases the only supplier—of 20 specialty formulas used by infants, as well as older children with rare metabolic diseases. Abbott voluntarily recalled the formulas made at that plant, including Similac, Alimentum, and EleCare, but said there is no evidence linking its formulas to the illnesses.

  • Biden met with retailers and manufacturers, including


    Walmart,


    Target,
    and Enfamil owner


    Reckitt Benckiser.
    The administration has been trying to boost production for months while increasing formula imports from abroad and encouraging retailers to limit in-store and online purchases to prevent hoarding.

  • The FDA said more formula has been produced in the past four weeks than in the four weeks before Abbott’s recall, and FDA Commissioner Robert Califf said it is working to ensure that products are available where they are needed.

What’s Next: The Biden administration is asking the Federal Trade Commission and state attorneys general to crack down on price gouging, and the FDA is warning parents not to make their own formulas. A House committee has scheduled a hearing for May 25.

Janet H. Cho

***

Robinhood Stock Pops After Crypto Exec Discloses Stake

Robinhood Markets shares, which have languished since last year’s initial public offering, got a jolt of energy late Thursday after a regulatory filing disclosed crypto exchange executive Sam Bankman-Fried had acquired a 7.6% stake. Robinhood shares surged 33% in late trading.

  • Bankman-Fried, the co-founder and CEO of FTX Trading, made the $648 million purchase through Emergent Fidelity Technologies, which he majority owns. The filing said the stock was an “attractive investment” and the owner intends to hold the shares as an investment.

  • Robinhood stock hit a 52-week low on Thursday and has more than halved this year. The company was one of last summer’s most anticipated IPOs but the shares are down more than 70% since then and retail enthusiasm for trading has tapered off in recent months.

  • FTX is among the largest crypto exchanges and competitor for Coinbase and Binance. Robinhood said with earnings in April that customer crypto trading activity fell significantly given market volatility and uncertainty.

What’s Next: In April, Robinhood gave two million people on a wait list for its crypto wallet access to send and receive cryptocurrencies available on Robinhood. The wallets aren’t yet available in Hawaii, Nevada or New York, it added.

Liz Moyer

***

Apple Stock Has Broken Down Below a Key Level


Apple
stock has broken below a key level. That is an ominous sign for the broader market. After Wednesday’s trading, Apple lost its No. 1 ranking as the world’s most valuable company to Saudi Aramco, the energy giant backed by Saudi Arabia.

  • Apple is unique, or at least unusual, because it is such a force in the broader market. Its market capitalization is about 7% of the S&P 500’s aggregate market cap, which is significant because the index’s level is weighted by its components’ market values.

  • It is currently trading around $142-a-share. Shares fell 2.7% Thursday after having fallen 4.6% Wednesday, coming close to marking something rarely seen: The last time the stock fell 5% for two straight days was Oct. 14 and 15, 2008, according to Dow Jones Market data.

  • Investors are unsettled—if Apple can’t hold the line, how can the broader market fare much better—or even as well? Stocks with greater market values have a heavy influence on the movements of the index. So when Apple stock declines, it is hard for the S&P 500 to gain much.

What’s Next: The fact that Apple is getting hit so hard is a red flag that investors are waving: One belief could be, in serious numbers, that economic demand could falter enough for shoppers to think twice about buying that new iPhone, or iPad, or Mac. With Apple’s ranking and reputation comes the big role it plays in the broader maker. Keep an eye on the tech giant. It can tell a lot about where things are headed.

Jacob Sonenshine

***

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 thebarronsdaily@barrons.com.

1. How much did Andy Warhol’s silk-screen portrait of Marilyn Monroe sell for at auction at Christie’s, setting a record for any American artwork?

a. $165 million

b. $175 million

c. $185 million

d. $195 million

2. Which underwriter announced it will cut back its special-purpose acquisition business as investor interest wanes and new regulatory disclosures are expected?

a. Goldman Sachs Group

b. Citigroup

c. Barclays

d. Morgan Stanley

3. Activist hedge fund Third Point raised its stake in this oil giant and is calling for the company to restructure its businesses. The oil company is:

a. ConocoPhillips

b. Exxon Mobil

c. Shell

d. Chevron

4. To what annual level did U.S. consumer inflation ease to in April from March’s 8.5% annual rate, marking the first decline in eight months?

a. 8.4%

b. 8.3%

c. 8.2%

d. 8.1%

5. Bitcoin followed on the heels of the market selloff with the cryptocurrency slipping below what level?

a. $40,000

b. $35,000

c. $30,000

d. $25,000

Answers: 1(d); 2(a); 3(c); 4(b); 5(c)

Barron’s Staff

***

—Newsletter edited by Liz Moyer, Camilla Imperiali, Rupert Steiner

Source

LEAVE A REPLY

Please enter your comment!
Please enter your name here

9 − 2 =