Musk vs. the Market

By Alex Eule |  Monday, April 25 Musk's Buy Signal? If you missed the stock market's comeback today, you're forgiven, especially if you were following the news on Twitter. The market turned into positive territory around 3 p.m. today, but the rebound happened to coincide with the timing of Elon Musk's agreement to buy Twitter, which became official at 2:50 p.m. Eastern time. The deal culminates weeks of disclosures, tweets, and speculation. And it all but overwhelmed Twitter itself.  So did Musk's deal help tech stocks and the broader market? Was the world's richest man sending a broader buy signal? Most likely not.  Musk himself has already said of his Twitter offer: "I don’t care about the economics at all." So this isn't the kind of M&A that should spark a broader buying frenzy. In fact, my colleague Jacob Sonenshine argues the deal may be a sign that the broader market is in more trouble than we realize. Rather than pushing for a higher price, Jacob notes, Twitter's board ultimately accepted Musk's initial "best and final" offer of $54.20 per share. It's likely the board's leverage was hurt by a market that had fallen for three consecutive weeks. The tech-heavy Nasdaq Composite was down 3.8% last week alone. And before today's modest rally, the Nasdaq was down 10% over the last three weeks. That decline came over the exact three-week period that Twitter spent trying to fend off Musk, who first disclosed his Twitter stake on April 4. A stronger stock market may have given the board more confidence in rejecting the bid while hoping for a Twitter rebound. Instead, the board capitulated.   Here's Jacob: The deal itself is not exactly a vote of high confidence in Twitter. The price represents a 20% premium to the $45.08 a share the stock closed at before Musk made his offer. But it’s also about 30% below the stock’s all-time high of $77.06, hit in February 2021. When the chatter of a Musk takeover began, few thought the deal would go through. Brian Quinn, a professor at Boston College Law School, recently told Barron’s that Twitter’s board would likely push for a better price, and he wasn’t the only one. Still, the sides ultimately agreed on the original offer price. ... And if the recent market volatility is a sign of economic turbulence to come, Twitter’s earnings and sales could take a hit as well. The company makes a big chunk of its money from advertising, and brands normally reduce their ad spending when their own sales expectations are lowered. ... The point is that confidence in the stock market is so low that no one should be surprised to see an offer for Twitter look low as well. Today, the S&P 500 ended up 0.6%, while the Nasdaq rallied 1.3%, and the Dow Jones Industrial Average rose 238 points, or 0.7%. The optimism tracked a rare day of declining bond yields. The two-year Treasury yield snapped a six-day up streak, falling eight basis points (0.08 of a percentage point) to 2.628%, while the 10-year yield was also off eight basis points, to settle at 2.825%.  While Elon Musk may not be looking for value, investors still are. And, after three weeks of declines, that's likely the best excuse for the day's rally.

 

DJIA: +0.70% to 34,049.46 S&P 500: +0.57% to 4,296.12 Nasdaq: +1.29% to 13,004.85 The Hot Stock: Moderna +7.2% The Biggest Loser: Charles River Laboratories -7.2% Best Sector:  Technology +1.5% Worst Sector: Energy -3.3%