Will the SEC Block Musk’s Twitter Deal?

Elon Musk, Tesla CEO and Dogecoin enthusiast

Stocks tumbled this morning as slowdown fears weighed heavily on bulls. Yesterday, the market rallied sharply into the close after opening significantly lower. It was yet another intraday reversal that had bulls feeling hopeful.

Will they be treated to a repeat performance today?

Through noon, chances are looking slim. All three major indexes have given up the entirety of yesterday’s rally, falling beneath last Friday’s lows. The Nasdaq Composite, in particular, remains in bear market territory, now down 22% from its all-time high after slipping 2.9% this morning. The Dow and S&P have dropped 1.6% and 1.7%, respectively.

And concerns of a coming economic slowdown have only intensified over the course of the current earnings season. Quarterly revenues beat expectations for most S&P companies thus far. Forward guidance, however, has been a different story. Netflix (NASDAQ: NFLX) told shareholders last week that it would lose 2 million subscribers over the next quarter.

Investors did not take the news well as evidenced by NFLX’s post-earnings plunge of -35%. Google (NASDAQ: GOOG) and Microsoft (NASDAQ: MSFT) are set to report this evening after the close.

If forward guidance skews negative, a market-wide rout could easily follow tomorrow morning. A pair of major earnings “beats,” on the other hand, could kick-start the next rally.

“I expect cloud computing, both from Amazon and from Microsoft, and, frankly, from Google, all to see continued growth because that move to the cloud, obviously, accelerated during the pandemic and continues to grow,” said TECHnalysis chief analyst Bob O’Donnell in an interview yesterday.

“And companies are making the move to put more of their stuff there.”

The problem is that the Big Tech firms will try to undersell forward guidance even if last quarter’s results were impressive. Google will want to set goals for Q2 that it knows it can hit. The same is true for Microsoft.

But being humble at a time when everyone’s worried about a global slowdown – plus a Covid resurgence in China – may end up kicking tech shares lower as a result.

“I think the most interesting thing happening in China right now is not that the yuan’s moving and not that the economy’s slowing – it’s that everything that’s happening right now, we knew weeks ago,” said China Beige Book CEO Leland Miller.

“We knew that the economy was slowing, we knew they were not going to stimulate in a big way, we knew that lockdowns were spreading from Shanghai to other big cities, we knew the Fed was hiking, we knew there’s a policy crackdown, so it is interesting that people are seeing today as a pivotal moment.”

Even Twitter (NASDAQ: TWTR) shares were down this morning after the board accepted Elon Musk’s offer to buy the company at $54.20 per share. As noted by Musk’s critics yesterday, the SEC could potentially step in to block the deal over the filling of the incorrect form (form 13G vs. 13D) when he disclosed his 9.2% stake in the company.

If that happens, TWTR would undoubtedly crumble. But it’s relatively unlikely given that Musk has played nice with the SEC ever since he got slapped on the wrist for securities fraud several years ago. Still, there’s potential for a huge bearish trade should the deal fall apart. That had some investors feeling nervous about their stake in TWTR this morning.

Along with the widespread selling that almost all stocks – not just tech – have endured with two critical earnings reports coming up after the bell.


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