Wall Street Breakfast: What Moved Markets

The S&P 500 (SP500) ended the week 2.1% lower on Friday amid renewed fears that the economy could slip into recession next year as major central banks may not yet ease rate hikes. The benchmark index has posted losses in three of the five sessions, with hopes of a Santa rally this year quickly fading. The major indexes posted a second week of losses with the Dow down 1.7% and the Nasdaq down 2.7%. The Federal Reserve, the European Central Bank and the Bank of England are increasingly dovish during the week as inflation remains stubbornly high. Of note, San Francisco Fed President Mary Daly said the Fed still has “a long way to go” to get inflation to 2%. Trading was particularly volatile on Friday with $2.6T worth of options ending as part of the magic day. See a preview of next week’s key events that could move share prices in Seeking Alpha’s Catalyst Watch.

Increased M&A

Amgen ( AMGN ) is seeking a pipeline of new drugs and some blockbuster treatments on Monday, agreeing to acquire Horizon Therapeutics ( HZNP ) for $116.50 per share. That would value the Ireland-based company at about $27.8 billion on a fully diluted basis, and about $28.3 billion including debt. Horizon is a rare autoimmune and inflammatory disease biotech, with revenue generators like Tepezza, Krystexxa and Uplizna adding $2 billion to the company’s sales in the first nine months of the year.

Backdrop: Amgen was the last of three bidders in an auction for Horizon that included Johnson & Johnson ( JNJ ) and Sanofi ( SNY ). All drugmakers are looking to renew their pipelines, but none are being as aggressive as Amgen. It faces one of the largest portfolios of patent expirations in the industry, providing serious acquisition over the past two years.

Over the summer, Amgen made a $3.7 billion purchase of ChemoCentryx to expand its inflammatory disease presence. 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 acquisitions such as tissue regeneration specialist Rodeo Therapeutics for $55 million.

Market behavior: Shares of Horizon Therapeutics 14% increased on the news, when Amgen stock 3% fell. The latter expects to use cash and debt to finance the deal, which is expected to close in the first half of 2023 and contribute to non-GAAP revenue and earnings starting in 2024. However, Amgen did not update 2022 or 2030. guidance in the outcome of the conversation. (20 comments)

Fusion revolution

Investors watched Tuesday for an announcement from the U.S. Department of Energy that could shake up our world’s power supply. An important milestone was achieved at the Lawrence Livermore Laboratory in California, which is based on fusion technology. It’s the same process that powers the sun and stars, and may eventually lead to an unlimited source of cheap clean energy.

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A picture: Success, known as net energy gain (or target gain), means that more energy was produced from the fusion reaction than was consumed. Scientists created the effect with the world’s largest laser under 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.

Plasma physicist Dr. Arthur Turrell said, “If this is confirmed, we are witnessing a moment in history.” “Scientists have been struggling to show that fusion can release more energy since the 1950s, and researchers at Lawrence Livermore seem to have finally and completely shattered this decades-long goal.”

Nir: While things are still in the early stages, the trick will be to make the process self-sustainable, capture enough energy to power the infrastructure, and do so consistently. Fusion also doesn’t have all the radioactive waste associated with current reactors that use fission, and has the potential to easily surpass other clean energy sources like solar and wind in terms of production. Fusion’s backers say the technology could be commercialized within a decade or so, but many are skeptical about such a timeline, saying they are too wary of companies seeking government subsidies and private investment. (151 comments)

A long way

As widely expected, the Federal Open Market Committee on Wednesday raised its policy rate by 50 basis points to 4.25%-4.50%, as it was down from 75 bps hikes in its previous four meetings. While that would seem like a win for investors, the so-called “point spike” was more worrying. The median projection of Fed policymakers now sees the federal funds rate target rising to 5.1% next year – a level last seen in 2007 – compared to 4.6% in the central bank’s September projection.

Price recommendation: “We have to be honest with ourselves that there is inflation. 12-month core inflation is 6% CPI. That’s three times our target of 2%. Now it’s good to see progress, but let’s just understand that we have a long way to go.” to get back to price stability,” Fed Chairman Jerome Powell said at a press conference. “I don’t think anybody knows whether we’re going to have a recession or not, and if we do, whether it’s going to be a deep one. It’s just — not known… The historical record warns. It’s strongly against a policy of premature easing. We will be on our way until the job is done.”

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All three major US stock indexes retreated after the announcement, erasing earlier gains in the session. The selloff accelerated on Thursday, as the ECB and BoE raised rates, and recessionary cousins ​​turned to shouting. Rate hikes are difficult in the sense that monetary policymakers may not know for another year whether they tightened too much or not enough (economists call those effects long and variable lags).

Comment: “The Federal Reserve’s decision to slow the pace of rate hikes to 50 bps is the beginning of the end of this rate hike cycle,” said SA partner Ahan Vashi. “However, slowing the pace of rate hikes is not the point, and the Fed’s quantitative tightening program is likely to continue for the foreseeable future. With the Fed tightening into an inverted Treasury yield curve, the near-term environment should be dangerous. -off . Therefore, equity markets could see more volatility in the coming weeks.” (256 comments)

Fame to fame

Sam Bankman-Fried’s fall from grace may end with some prison time. The founder and former CEO of FTX was arrested in the Bahamas this week after the United States filed criminal charges against the one-time superstar of the crypto world (and requested his extradition). The crimes include wire fraud, conspiracy to commit wire fraud, securities fraud, securities fraud, conspiracy to commit securities fraud, money laundering and violations of campaign finance laws.

Interesting times: Just before his arrest, SBF was scheduled to testify before the House Financial Services Committee on the collapse of FTX, which was already worth $32 billion. More information is still needed, but all indications are that sour bets made by SBF’s hedge fund, Alameda Research, indicate that FTX’s customer deposits were used for risky trades. Mass withdrawals from FTX emerged as reports about its financial health emerged, although to date, SBF has denied any prior knowledge of the situation or lending FTX customer deposits to finance Alameda’s activities.

Some details were later revealed by John J. Ray III, FTX’s new CEO, during testimony on Capitol Hill. “We are continuing our painstaking legal efforts to account for all assets,” said Ray, who has more than 40 years of legal and restructuring experience, including overseeing the high-profile bankruptcy of Enron in 2001. from the complete concentration of control in the hands of a very small group of very inexperienced and incompetent persons, who could not actually implement any of the systems or controls required for an enterprise entrusted with other people’s money or assets.”

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Civic activities: In addition to the criminal allegations, SBF faces charges from the Securities and Exchange Commission for violating securities laws. Other civil actions have been brought by the Commodity Futures Trading Commission, and state banking regulators may also be involved. In his last tweet before his arrest, SBF wrote: “I thought of myself as a model CEO, not lazy and cut-throat. This made it all the more devastating when I did.” “I’m sorry. I hope people can learn the difference between who I was and who I was.” (276 comments)

Finance of the World Cup

The 2022 World Cup in Qatar has proven to be the most controversial to date, but many parties are cashing in on the benefits the competition offers. The tournament has seen a string of upsets this year, with even more visibility when it comes to viewing figures, and France will face Argentina in the final on Sunday. Based on historical growth trends, around 1.5B people are expected to watch the championship game worldwide, representing almost one-fifth of all people on Earth.

Bottom line: It is a great platform to get your message out. In terms of hard money, the host countries do not benefit from the games, although it increases their position on the world stage and projects soft power as a good place for marketing. Advertisers, on the other hand, hope to hit the record high on their marketing efforts, with ads, jerseys and stadium banners all viewed by billions of eyes. Associate sponsors this year include Adidas (OTCQX:ADDYY), Budweiser (BUD), Coca-Cola (KO), Hyundai (OTCPK:HYMPY), McDonald’s (MCD) and Visa (V).

“If they really felt strongly about the issue, then they could pull out of those markets,” said Kieran Maguire of the University of Liverpool, when asked about trade deals despite disputes over Qatar’s treatment of workers. immigrants and the LGBT community, political restrictions. testimony, and allegations of bribery for hosting the tournament. “We had the 2018 World Cup in Russia, and remember, Russia invaded and annexed Crimea in 2014, but that didn’t stop any of the sponsors from getting involved.”

Bit of a stretch? Some argue that the World Cup champion country could see GDP growth points following the event due to greater international visibility. However, linkages to exports and trade are difficult to assess, and can also be influenced by external factors or trends in the global economy.

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