Stocks jumped significantly higher at the open this morning as bulls attempted to reboot the bear market rally. Positive sentiment faded through noon, but the major indexes all remain up on the day.
Analysts pointed to a rollback in Covid restrictions in China as a potential reason for this morning’s equity surge. Beijing also wrapped up its investigation into ride-sharing company DiDi (NYSE:DIDI), which had been barred from adding new users to its platform by Chinese regulators. With their investigation concluded, regulators are now allowing DiDi to resume normal operations. This caused DIDI shares to explode 50% higher at the open.
The news lifted other Chinese tech stocks, too. Investors took the DIDI ruling as evidence that Beijing’s tech crackdown may finally be over.
“Since those lows near 3,800 in the S&P 500 there has been real progress: China is reopening and hopefully the economy will be close to operating at near-full capacity within a month,” said Sevens Report founder Tom Essaye.
“That will add a large tail-wind to the global economy, and perhaps most importantly, ease supply chain stress.”
Eased supply chain stress should translate into lower inflation, which bulls desire greatly now that a September rate hike pause is on the table.
All eyes are on this coming Friday’s Consumer Price Index (CPI) release as a result.
“As we look ahead to this week’s U.S. CPI numbers for May, the main worry for investors is that in their increasing urgency to contain upside risk in inflation, central banks tighten monetary policy too quickly and tip the global economy into recession,” said CMC Markets UK chief market analyst Michael Hewson.
“Putting to one side the fact that surging inflation is probably already doing that in terms of a cost-of-living squeeze on consumption patterns, markets appear to be navigating a tightrope of concern over which is the better option.”
The 10-year Treasury yield climbed above 3.00% today for the first time since May 11th. Depending on how Friday’s CPI release is received, investors could see it dip below 3.00% as part of a short-term bond rally.
And, as the market awaits the latest batch of inflation data, its attention should remain fixed on Elon Musk’s ongoing Twitter (NASDAQ: TWTR) saga, which added a new chapter just a few hours ago.
This morning, Musk accused Twitter of “resisting and thwarting” his investigation into fake accounts on the social media platform. Musk called it a “clear material breach” of the terms of their merger agreement.
The Tesla CEO is now threatening to withdraw his offer if Twitter refuses to cooperate.
“Mr. Musk reserves all rights resulting therefrom, including his right not to consummate the transaction and his right to terminate the merger agreement,” read Musk’s letter to Twitter, which was signed by his attorney, Mike Ringler.
TWTR shares fell 5% in response.
The question now is whether they’ll stay there. If Musk ends up renegotiating the deal, he could potentially end up paying far less per share than initially agreed upon ($54.20). This alone would put a ceiling on TWTR’s potential gains moving forward.
And, if Musk ends up canceling the deal, TWTR shares could easily head even lower. The stock is currently trading for roughly what it was prior to Musk’s original announcement that he intended to purchase the company.
As we mentioned several weeks ago, though, Twitter’s bot accounts may become a bigger issue, and not just for the acquisition itself. If Musk is actually able to audit the company and he finds out that Twitter’s board was intentionally withholding the number of bot accounts from its shareholders, criminal charges could soon follow.
So, as attractive as TWTR may look now relative to where it was trading at in late May, avoiding the stock is likely the best choice. Its upside is limited at best given Musk’s recent pivots. The stock’s downside potential, meanwhile, has only grown with time, and should continue to do so if Musk uncovers the truth about Twitter’s bot accounts.
