This month, Madison Business Review contributor Bryce Roth provides a recap of what happened in the business world and stock markets.
The “Sell in May and Go Away” phrase seemed true for the first half of May, with the S&P 500 dropping 3% between May 1 and 12 and turning positive later on by 0.27%. This was driven by inflation, economic outlook, the Colonial Pipeline shutdown and a crypto plunge.
Vaccine rollouts and COVID-19 restrictions easing also allowed for increased optimism from investors in May. The Centers for Disease Control and Prevention (CDC) stated that individuals don’t need masks when walking outside, and multiple states have started pulling back on their own distancing and mask restrictions.
The Fed holds back on worrying inflation
Inflation continues to be a concern for investors and — as shown in the graph below — is currently above the 2% target the Federal Reserve aims for. Yet with updated guidance from the Fed, this shouldn’t be too big of an issue at the moment.
After a year of near-zero interest rates and low consumer prices, new inflation data is shaking up markets. Now, there are concerns that inflation could continue to rise unchecked.
Meanwhile, the Fed will begin to sell corporate bonds and exchange traded funds (ETFs) acquired during the COVID-19 crisis, which served as a source of much-needed financing. The Secondary Market Corporate Credit Facility (SMCCF) is one the programs the Fed set up in March 2020 to help with the pandemic, and it’s accrued $5.21 billion since in addition to $8.56 billion in ETFs.
Pipeline attack caused outbreak of overreaction
On May 7, Colonial Pipeline shut down its 5,550-mile gasoline pipeline following a cyber attack on the company's computer systems that served New Jersey, Pennsylvania, Delaware, Maryland, Virginia, North Carolina, South Carolina, Georgia, Tennessee, Alabama, Mississippi, Louisiana and Texas. Millions of barrels of gasoline, diesel and jet fuel were prevented from reaching fuel tanks throughout the Eastern U.S. After the pipeline reopened May 12, there still were seven states and Washington, D.C., with at least one in four gas stations lacking access to fuel.
During the shutdown, the national gas average spiked 30% to $3.02, before Colonial paid the hackers $4.4 million in ransom. Patrick De Haan, head of petroleum analysis at GasBuddy — a company that compiles data on gas stations — blamed most of the empty pumps and price spikes on an overreaction by consumers.
The following Monday, Chairman of the Federal Energy Regulatory Commission (FERC) Richard Glick, and one of its commissioners, Allison Clements, issued a joint statement calling for the creation of “mandatory pipeline cybersecurity standards,” similar to those of the electric industry.
Two days later, President Biden signed the executive order covering cybersecurity, while the House of Representatives re-introduced the Bipartisan Pipeline Security Bill initiated last year. Both pieces of legislation could help stem future attacks on the nation’s natural resources.
Crypto plunges as meme stocks soar
Crypto markets were looking great this year until mid-May, when a crypto crash wiped out nearly $1 trillion off the crypto market cap. Bitcoin, which accounts for 40% of the crypto market, dropped nearly 50%, falling from a high of $58,000 to nearly $30,000 May 19.
So what happened? May 12, Elon Musk reversed Tesla's commitment to accept Bitcoin as payment because of concerns regarding the crytocurrency's carbon footprint. This was a surprising move since Musk’s company Tesla put over $1 billion into Bitcoin just a few months ago. On the same day, Chinese officials started to crackdown on Bitcoin use within their country, stating that Chinese financial institutions and businesses cannot accept digital currencies as payment or offer services using them. This is bad news for Bitcoin as skepticism of the cryptocurrency has grown in larger markets; before, only a small list of countries had banned Bitcoin.
While other cryptocurrencies such as Ethereum and Dogecoin were negatively impacted by this news as well, the future of cryptocurrencies still looks bright: Bitcoin has made a slight comeback at a price of roughly $38,000. Nevertheless, perhaps investors and companies were too optimistic about Bitcoin being normalized — the instability of the cryptomarket has been exposed.
Meanwhile, this past week was a wild one for the meme stocks. AMC shares lost 6.7% after a 83.4% rally. BlackBerry sank 12.7% on Friday but gained 37.6% last week. Bed Bath & Beyond dipped 0.6% but ended the week 13.3% higher. GameStop dipped 3.8% Friday after gaining 111.9% last week. The Wallstreetbets forum has continued to control the trade volume of these stocks. Yet, with no fundamentals driving the stock price, the meme stocks continue to be incredibly volatile and don’t seem to be stabilizing soon.
SPACs find footing in Wall Street
Special-purpose acquisition companies, or SPACs, are businesses set up with the sole purpose of raising and holding money, before investing it in another company. Recently, this investing strategy has been gaining traction.
William Ackman’s SPAC is nearing a transaction with Universal Music Group — the home of Taylor Swift, Drake and Billie Eilish — that would value the world's largest music business at about $40 billion. Meanwhile, Vivendi SE is in talks to sell 10% of Universal Music Group. This could be the largest SPAC deal to date; however, there’s no guarantee it’ll go through.
That said, in 2021, at least 330 SPACs were formed, raising $104 billion in total. This surpasses last year's record of roughly $80 billion, according to Dealogic, and signals that SPACs are increasingly becoming more important to markets today and the future.
Bryce Roth is a senior finance major. Contact Bryce at email@example.com.
Disclaimer: I'm a long time investor in Tesla. I wrote this article myself, and it expresses my own opinions. I’m not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.