Investment update

Weekly insight into the marketplace.

April 25 to 29, 2022

Elon Musk bought Twitter

Fear that China’s latest COVID-19 outbreak will hamper global economic growth, along with rising global interest rates aimed at taming inflation, continued to weigh on investor sentiment last week. But the biggest market influencer was Elon Musk’s purchase of Twitter, and the effect it had on Tesla stock. On Monday, Twitter’s board unanimously agreed to accept Musk’s all-cash offer to buy the social media company for US$44 billion dollars. Initially resistant to the takeover bid, the board, under pressure from stakeholders, ultimately changed course: “The proposed transaction will deliver a substantial cash premium, and we believe it is the best path forward for Twitter’s stockholders,” Bret Taylor, Twitter’s independent board chair, said in a statement. Twitter shares rose 5.7% following the deal, which sparked a mid-day rally that saw the Dow stage its biggest intra-day reversal since February 24. The S&P 500 and Nasdaq also posted their biggest gains in a week, and Canada’s TSX nearly recouped all of its daily losses with a late-day bounce back.

Tesla stock weighed down markets

Musk was at the center of activity again on Tuesday after Tesla stock declined 12%, wiping out US$126 billion in market valuation, and leading to a 4% decline for the tech-heavy Nasdaq. Investors were concerned that the world’s richest man would sell more of his Tesla shares to cover the Twitter price tag. On Thursday, Musk sold US$8.5 billion worth of Tesla stock, but tweeted he had “no further Tesla sales planned after today.” Not all of the financing details for the Twitter sale were made public, but Musk acknowledged that he used his Tesla shares as collateral, spooking investors during a period when tech stocks were already under pressure due to climbing interest rates. Since April 4, when Musk first announced that he’d increased his stake in Twitter, Tesla’s market capitalization has declined more than US$275 billion.

Corporate earnings came into focus

Wednesday saw markets close unevenly, with positive results for Microsoft – which only beat revenue expectations by 1% (US$49.36 billion vs. $49.05 billion) – slightly offsetting Alphabet’s first revenue miss since Q4 2019. Amazon (which reported later in the week) also disclosed its first loss in seven years. Sentiment improved dramatically Thursday when shares in Facebook’s parent company, Meta, surged 19% after the company reported revenue of US$27.9 billion, up 7% from a year earlier. But the gains wouldn’t hold. Markets nosedived Friday when disappointing economic data heightened uncertainty. Domestically, Air Canada reported that it more than tripled its revenues last quarter compared to the same period in 2021 ($2.57 billion versus $729 million), despite recording a net loss of nearly $1 billion. Vancouver-based mining company Teck Resources announced first-quarter earnings of $1.57 billion, up from $305 million on an increase in demand for copper, zinc and steelmaking coal.

The stock and bond market
Index Close Week YTD
S&P/TSX Composite 20,762.00 -1.96% -2.17%
Dow Jones Industrial Average 32,977.21 -2.47% -9.25%
S&P 500 Index 4,131.93 -3.27% -13.31%
NASDAQ Composite 12,334.64 -3.93% -21.16%
10-year Canadian Bond Yield 2.80% -0.07% 1.38%
10year US Treasury Yield 2.89% -0.01% 1.37%
WTI Crude Oil US$/barrel $104.69 2.57% 39.20%
Canadian Dollar US$0.7775 -1.17% -1.73%
Bank of Canada Prime Rate 3.20%

*Weekly performance ending April 29, 2022. Source: Bloomberg.

Key take-away

Rising interest rates can negatively impact markets. Bonds are particularly sensitive to interest-rate changes, as many pay a fixed rate of interest. During a period of rising rates, holding bonds that exhibit a shorter duration can reduce your exposure to interest-rate risks. A Co-operators financial representative would be happy to review your portfolio with you to ensure you’re on track.

What’s ahead

U.S. Federal Reserve meetings and statement (May 3-4): There’s little doubt the Fed will raise interest rates when it meets this week. The question on investors’ minds is how much benchmark rates will rise, as the central bank tries to cool inflation without plunging the U.S. economy into a recession.

Circle these dates

May 23 Canada’s TSX closed for Victoria Day holiday

May 30 U.S. markets closed for Memorial Day holiday

June 1 Bank of Canada interest-rate announcement

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