Good morning — or afternoon — and welcome to the stock market today! Dive in with InvestorPlace below for quick answers to the top question: What will the stock market do today?
To start, where do things stand with the major indices? Today is actually bringing a bit of a recovery rally. The S&P 500 is up 0.6%, while the Dow Jones Industrial Average is up 0.63%. The Nasdaq Composite is also up, 0.67%.
So what will the stock market do today? Here are the top stories.
What Will the Stock Market Do Today? Sell SPAC Stocks?
When special purpose acquisition companies come public, they issue a combination of common stock shares and warrants. These warrants give holders the right to buy common stock at a certain price, and they come with an expiration date. For instance, when Churchill Capital IV (NYSE:CCIV) debuted, shareholders could purchase a unit that came with one CCIV stock share and one-fifth of a warrant to purchase stock at $11.50. As Robert Freedman wrote for CFO Dive, these warrants are essentially a way of attracting investors before the merger. Without them, many investors may not want to take a gamble on a pre-merger company that cannot produce revenue.
The U.S. Securities and Exchange Commission recognizes the dynamic that is at play, and now it is talking about cracking down. In new guidance, the SEC says that SPACs should classify these warrants as liabilities on their balance sheets. This would require companies to re-value the warrants each quarter, and to adopt more complex accounting practices. As CNBC reported, this will cost blank-check companies big bucks in accounting fees, and could ultimately remove the incentive for pre-merger investors.
Unsurprisingly, the SPAC market is rapidly cooling down. In fact, just 10 new special purpose acquisition companies debuted in April, a major drop from months past. There were 100 new deals in March 2021. Data from Bank of America shows that retail investors are quickly losing interest in these equities.
What does this mean? Investors likely know that SPAC stocks are struggling — one indicator suggests SPACs are in a bear market. Popular names like CCIV stock, Pershing Square (NYSE:PSTH) and the offerings from Chamath Palihapitiya are frustrating investors. Once a guarantee to big gains, many of these SPAC stocks have fallen flat. While Wall Street waits in limbo for further SEC guidance, keep a close eye on this story.
Troubling Trifecta: Inflation, Herd Immunity and the YOLO Economy
Revenge spending is the talk of Wall Street. Consumers, filled with pent-up emotion and eager to join normal life, are opening their pocketbooks and buying all sorts of products and services. Retailers like Levi (NYSE:LEVI) and Ulta (NASDAQ:ULTA) have benefitted, as have Botox providers, luxury goods brands and cruise lines. People want to look good and feel good — and enjoy everything they have been unable to since early March 2020.
This trend seems fair enough. We know households across America have been saving more money than usual, and stimulus checks have also given consumers a boost. The excitement and opportunity of Covid-19 reopening feels like the perfect time to open up wallets and start spending.
But what happens if consumers jump the gun? Or if revenge purchases become regrettable… or at least more expensive purchases? For starters, investors are now seeing signs that consumer prices on goods from peanut butter to toilet paper to breakfast cereal are climbing. In fact, Procter & Gamble (NYSE:PG) confirmed in its earnings call that it will raise prices to counter rising raw materials and transportation costs. And what happens if as you start to blow your money on skinny jeans, contour kits and plane tickets, the United States gets hit with another round of Covid-19 restrictions? As of this week, half of American adults have received at least one dose of their Covid-19 vaccines… but as many as one-fourth of Americans still don’t want the shot.
Much of the reopening rally rests on the idea of herd immunity in the U.S. This threshold would require 70%-90% of Americans to achieve immunity, through full vaccination or previous exposure to the disease. President Joe Biden has floated the idea that by July, we could achieve this threshold and be well on our way to a return to normal. If not enough Americans get the vaccine, a waiting game could start. In other words, as Axios writes, we could hit a vaccine wall. Investors could then find themselves in a situation where consumers have less money, face inflation fears and are cooped up at home for longer than anticipated.
One more thing to watch: The New York Times described the YOLO economy today, a phenomenon in which Covid-19 prompted many workers to leave stable jobs in search of adventure. These new jobs rest on a recovering economy and the vaccine rollout… adding another layer to this tenuous story.
What Else We’re Watching
- Amazon (NASDAQ:AMZN) is launching a hair salon, and Wall Street is amused. According to the tech giant this is a way to test augmented reality tech, among other things.
- Lumber prices continue to soar as the supply-demand imbalance in the housing market continues. Although analysts are confident that there is a hot opportunity in the short term, some are already calling for a big correction by the end of 2021.
- Remember how the Super League debuted earlier this week, promising long-awaited disruption in the sports space? Well, that disruption crashed and burned, after six soccer clubs pulled out of the league after facing blowback. Manchester United (NYSE:MANU) stock is up slightly this morning.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.