As Hedge Funds Endure Rocky Year, | Stock Market News Today


Investments in private companies are saving the year for stock-picking hedge funds.

Prominent managers that invest in both public and private companies in the same funds have seen their portfolio of public investments flail, weighed down by losses from January’s meme-stock rally and a retreat by fast-growing technology stocks. But soaring valuations of private companies and a hot U.S. IPO market have boosted their private wagers. That has helped mask their poor performance in public markets and driven up their overall returns.

Dan Sundheim’s $25 billion D1 Capital Partners, for example, is down 4% in its public bets for the year through September—but up 71% before fees in its private investments, said people familiar with the firm. The S&P 500 had a total return of 15.9% for the period.

D1 clients opt into share classes that offer varying levels of exposure to private investments. Clients in the share class that can invest up to 15% in private companies have seen gains of about 4.5%, after fees, for the period. The gains stand at 14% and 21% for clients in share classes that can invest up to 35% and 50% in private companies.

Meanwhile, Boston-based Whale Rock Capital Management was down 11.2% for its public investments in a hedge fund that can invest up to a quarter of its clients’ money in private companies, said people familiar with the fund. The performance of the fund’s private wagers shrank the fund’s losses to 3.3% for the year through September.

Hedge funds without private companies in their portfolios have had a rougher time. Palo Alto, Calif.-based Light Street Capital Management, which manages late-stage growth and other funds along with a hedge fund that only invests in public companies, is down 18.6% for the year through September in its hedge fund, said people familiar with the firm. That has brought the fund’s size down to about $1.7 billion. Its growth funds have fared much better, the people said, with Light Street’s first such fund, whose investments include the restaurant-software provider

Toast Inc.

and the software-development company

GitLab Inc.,

expected to have an internal rate of return of more than 100%.

The rush into private investing by public-market investors has helped fuel surging valuations for private companies. And as hedge funds, along with mutual funds and sovereign-wealth funds, deploy billions of dollars, they often crowd out venture and growth funds.

Hedge funds made up 27% of the money raised in private rounds this year through June, despite participating in just 4% of the deals, according to a recent report by Goldman Sachs Group Inc.

“These tech companies are growing exponentially, and managers want to capture that huge exponential growth for their clients,” said Susan Webb, founder and investment chief at the New York-based outsourced-investment firm Appomattox Advisory.

The higher-return potential is stark. Private-equity and venture strategies gained an average 14.2% a year in the decade ended in 2020, Goldman said, while hedge funds overall averaged half those annual returns over the period—and were subject to the stresses of regular redemption cycles.

Toast, a restaurant-software provider that went public last month, is an investment of a Light Street Capital Management growth fund.



Photo:

Richard Drew/Associated Press

Hybrid funds can offer distinct benefits, said Udi Grofman, global co-head of the private-funds group at Paul, Weiss, Rifkind, Wharton & Garrison LLP. “The beauty of the structure is that it allows the capital of the investors, in between being invested in private investments, to be exposed to public markets,” Mr. Grofman said. Clients typically sit on cash to fund capital calls by venture and private-equity funds.

Stock-picking hedge funds had a banner year in 2020, buoyed by markets that set new highs after bottoming that March.

Their fortunes in public markets have changed this year. The meme-stock rally in January, which sent the price of companies including GameStop Corp. and

AMC Entertainment Holdings Inc.

to extraordinary heights, dealt losses to myriad hedge funds. Whale Rock gained 71% last year, while the D1 share class investing up to 15% of clients’ money in private companies climbed 60%; in January they lost about 11% and 30%, respectively, in just their public investments.

While D1 has almost recouped those losses, Whale Rock and other growth-oriented stock pickers have struggled. Fund managers say sector rotations that have alternately favored growth or value have made it difficult to navigate markets. Long out-of-favor sectors such as energy and financials have been on a tear.

Meanwhile, private markets have continued to be supportive. The U.S. IPO market is flourishing, and companies are continuing to raise more money in private markets than in the past. Hedge funds are contributing to the brisk pace of fundraising. D1 and Tiger Global Management, which manages a series of private-equity funds in addition to a hybrid hedge fund, have participated in private funding rounds this year through September at a pace of more than a deal a week for D1 and more than two deals every three days for Tiger, according to PitchBook Data Inc.

The 44-year-old Mr. Sundheim, who started D1 after several years as chief investment officer at Viking Global Investors, said at a recent capital-introduction conference that he hadn’t expected to get as big in private companies as he has. D1 is invested in 90 private companies, he said.

He said judgment was the only competitive advantage in public markets as private markets offered the additional benefit of firms’ reputations playing a role in gaining access to deals. He said D1 in its earliest investments acted as a resource to management teams so they would be strong references for D1. Mr. Sundheim also said he was confident in his portfolio of public investments over the next three to five years.

Write to Juliet Chung at [email protected]

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Space Race, Nasdaq, IBM, Nvidia: What to Watch When the Stock | Sidnaz Blog


To the moon! Well, not quite, but into space at least today for

Jeff Bezos,

the billionaire baron of ecommerce. Also not going to the moon is

Amazon


AMZN -0.67%

stock, though it is 0.4% up premarket on Tuesday morning.

  • One reason for Mr. Bezos’s rocket ride is the more earthly goal of winning government contracts for the kind of less thrilling scientific projects the provide reliable revenue. His Blue Origin company is playing catch-up with Elon Musk’s SpaceX.
  • Mr. Musk’s electric vehicle maker

    Tesla,


    TSLA 0.31%

    is getting a bit of a boost Tuesday morning ahead of the open, rising 1% premarket. It is also gaining more attention on the message boards among day traders, according to Topstonks.com. The company reports earnings next Monday and tends to see its stock rise in the days ahead as investors start hoping for exciting announcements.

  • In the wider markets, U.S. stock futures are trending higher ahead of the open following Monday’s broad selloff. S&P 500 futures are up 0.5%, while Dow futures are up 0.6%. Nasdaq-100 futures are up 0.4%
  • Nasdaq the company, not the index, is itself rising premarket, up 1%, after The Wall Street Journal’s exclusive that it will spin out its Private Market for shares in start-ups that trade among some investors before an initial public offering. The business will go into a standalone joint venture company and get investment from three Wall Street banks and SVB Financial Group, a tech specialist bank.
  • Nvidia


    NVDA 15.18%

    is up 0.8% on large volumes following a 15% rise Monday. The shares are up nearly 80% over the past year, putting the chip maker into the top 10 list of U.S. public companies. It also executed its four-for-one stock split overnight, which has given some investors more ways to trade the stock-performance.

  • International Business Machines


    IBM -0.71%

    is up 3.4% ahead of the open on Tuesday after turning in decent second-quarter numbers Monday after the close. The computing group’s efforts to refocus on cloud-based computing and spin off its old-fashioned IT services business is winning fans among investors. At the same time, it has benefitted from companies beginning to invest again as the economy reopens.

IBM reported earnings on Monday..



Photo:

sergio perez/Reuters

Chart of the Day
  • Stocks, commodities and other financial markets took a stumble Monday on growing concerns about the strength of the post-Covid-19 global recovery.

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Blackstone, AIG, NortonLifeLock, Morgan Stanley: What to Watch | Sidnaz Blog


Futures are mixed ahead of jobless figures and a second day of testimony from Federal Reserve Chairman

Jerome Powell

on Capitol Hill. S&P 500 contracts are down slightly. Nasdaq-100 futures are up, suggesting tech stocks will outperform.

Here’s what we’re watching ahead of Thursday’s trading action.

Prague-based Avast primarily makes free and premium security software, offering desktop and mobile-device protection.



Photo:

david w cerny/Reuters

  • Is the steam coming out of meme stocks?

    AMC Entertainment,


    AMC -15.04%

    one favorite of the Reddit trading crowd, lost 3.7% premarket. If matched once trading begins, the stock would extend a decline of 43% over the past month.

    GameStop


    GME -6.91%

    and

    BlackBerry


    BB -3.79%

    shares have both dropped by almost a quarter in that time.

  • Netflix


    NFLX 1.34%

    shares rose 2.6%. The streaming company, which reached a licensing deal over animated films with Universal this week, has been on a tear of late, gaining 11% for the month through Wednesday.

  • T. Rowe Price


    TROW -0.85%

    shares are up 2.6%. Analysts at Citigroup, Deutsche Bank and Morgan Stanley have raised their target prices for the stock in recent days. T. Rowe said this week it managed $1.62 trillion in assets at the end of June.

  • Supply-chain technology provider

    E2Open Parent


    ETWO -0.73%

    fell 1% after reporting a fall in profit and revenue in its fiscal first quarter from a year before.

Chart of the Day

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Virgin Galactic, PepsiCo, JPMorgan Chase, Goldman Sachs: What to | Sidnaz Blog


Here’s what we’re watching ahead of the opening bell on Tuesday.

  • U.S. stock futures wavered, suggesting indexes would hover close to their record levels as investors awaited inflation data and earnings from the nation’s biggest banks.
  • Futures tied to the S&P 500 were relatively flat after the broad index climbed to its 39th record closing levels of the year. Dow Jones Industrial Average futures weakened 0.1%, while Nasdaq-100 futures were up 0.3%.
What’s Coming Up
Market Moves to Watch

JPMorgan Chase kicked off earnings season for big banks on Tuesday.



Photo:

Mark Kauzlarich/Bloomberg News

  • Conagra Brands


    CAG -0.53%

    declined 3.2% after reporting a fall in sales and cutting its expectations for profit next year, saying that it expects increased inflation to hit its bottom line.

  • PepsiCo


    PEP 0.02%

    shares added some fizz, rising 1.5% premarket after the food-and-beverage giant reported earnings and lifted its full-year guidance.

  • Tesla


    TSLA 4.38%

    edged up 1% in premarket trading, rising for the fourth consecutive day. CEO Elon Musk was in court on Monday to defend the purchase of SolarCity. He also said he doesn’t enjoy leading the automaker.

  • Boeing retreated 2.3%. The planemaker is facing production issues for the 787 Dreamliner, likely further delaying deliveries of the popular wide-body jets.
  • Some U.S.-listed Chinese companies are recouping recent losses, with search engine

    Baidu


    BIDU -0.53%

    adding 2.2%, e-commerce company

    JD.com


    JD -0.53%

    rising 1.5% and video-sharing firm

    Bilibili


    BILI 0.22%

    up 3.2%. Beijing said last week that it is probing tech companies’ data practices, prompting a tumble. But some of those worries may have eased after China’s top market watchdog approved

    Tencent’s


    TCEHY -3.36%

    plan to privatize search-engine affiliate

    Sogou.

  • Swedish telecom

    Ericsson

    ‘s U.S.-listed shares are up 3.5% ahead of the bell. Rating agency Moody’s issued a review of the company’s rating.

  • Meme stock

    AMC Entertainment

    slid 3.8% premarket. It has lost nearly 25% of its value this month so far.

Market Facts
  • The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite all hit record closes on Monday—and in the S&P 500’s case, it was the 39th record close this year, beating the Dow’s 27 records and the Nasdaq’s 24. The broad index is ahead of the others in terms of gains this year too, with a nearly 17% rise.
  • European stocks have also been on the rise, with both the Stoxx Europe 600 and Germany’s DAX index notching record highs on Monday.
  • On this day in 1852, Wells, Fargo opened for business in San Francisco and Sacramento. It was founded by Henry Wells and William G. Fargo to convert gold dust into cash for miners, transport and safeguard letters, gold nuggets and other valuable byproducts of the California Gold Rush.
Chart of the Day
  • Global coffee prices are climbing and threatening to drive up costs at the breakfast table as the world’s biggest coffee producer, Brazil, faces one of its worst droughts in almost a century.
Must Reads Since You Went to Bed

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Consolidation May Be Coming to a Screen Near You | Sidnaz Blog


Far from killing the movie-exhibition industry, the pandemic may end up helping the big theater chains get even bigger.

Flush with money from sales of its soaring meme stock,

AMC


AMC 2.25%

Entertainment has clearly indicated it is shopping around. When the company landed a deal on June 1 to sell about $231 million worth of shares to Mudrick Capital, Chief Executive

Adam Aron

proclaimed that it is time for the largest theater operator in the U.S. to “go on the offense again.” He noted at the time that the company was in discussions with multiple landlords to take over some theaters formerly operated by ArcLight Cinemas and Pacific Theatres.

The AMC Lincoln Square 13 movie theater in New York.



Photo:

Jeenah Moon/Bloomberg News

That deal may be near done. The Los Angeles Times reported Tuesday that AMC was nearing a deal for “key” Pacific theaters in the area. Two of the theaters were even listed on AMC’s site and ticketing app for part of the day before being taken down, the paper reported. They are unlikely to be the last, considering AMC’s acquisitive history and now bulging coffers. Chief Financial Officer

Sean Goodman

told a Credit Suisse investment conference this week that the company will end June “in the ballpark” of about $1.8 billion in cash, according to the broker’s report of the conference. AMC had about $308 million on its balance sheet at the end of 2020.

The wisdom of AMC pursuing more acquisitions is debatable. The company entered the pandemic with a ratio of net debt to earnings before interest, taxes, depreciation and amortization of 5.7 times at the end of 2019—twice that of competitor Cinemark, according to data from S&P Global Market Intelligence. Much of that stemmed from three acquisitions totaling about $3.2 billion in 2016 to 2017. AMC as a result was flirting with bankruptcy before the explosion of interest from retail investors ballooned the stock, which is now up more than 2,700% for the year. Eric Handler of MKM says AMC should use the new bounty to pay down its debt load that now totals about $5.5 billion, adding in a June 8 report that the company’s past deals have “produced subpar returns.” Mr. Aron has said AMC intends to use some of its funds to pay down debt.

Still, the opportunities may be tempting for all the major players. The National Association of Theatre Owners, or NATO, estimates about 125 exhibitors have closed permanently due to the pandemic. Emagine Entertainment, a privately held chain of 208 screens based in Michigan, has picked up four sites from competitors out of bankruptcy, according to Chief Executive Anthony LaVerde, also speaking at the Credit Suisse conference. Cinemark has been conservative with M&A historically, but its CEO,

Mark Zoradi,

told the same conference that the company is “really open” to opportunistic deals in the current environment. He added, though, that “we’re not going to overpay for assets.”

Adding screens could theoretically boost the bargaining power of major theater operators with studios, at a time when shrinking release windows and soaring popularity of streaming services has muddled the long-term outlook for the industry. And the relatively strong performance of the few blockbuster-sized releases that have hit theaters so far this year has been an encouraging sign.

But it may take a lot of deals to have an impact. AMC, Cinemark and Cineworld’s Regal chain already control about 48% of U.S. screens combined, according to Wedbush analyst Alicia Reese. And most of the operators who have closed have fewer than 100 screens, according to NATO spokesman Patrick Corcoran. Ms. Reese says operators with between 50 and 250 screens would be most attractive to companies like AMC, Regal and Cinemark. But even adding 250 screens would boost each chain’s domestic market share by just one percentage point. Paying down debt may be safer, but it makes for a less exciting show.

The coronavirus pandemic shuttered every single AMC theater for months. But the pandemic isn’t the only thing pushing the company onto financially shaky ground. Photo Illustration: Jacob Reynolds/WSJ (Video from 11/30/20)

Corrections & Amplifications
The National Association of Theatre Owners was misspelled as National Association of Theater Owners in an earlier version of this article. Also, the last name of the group’s spokesman, Patrick Corcoran, was misspelled as Cochran. (Corrected on June 18)

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Clean Energy Fuels, Freeport-McMoRan, Alexandria Real Estate: | Sidnaz Blog


Stock futures edged up on Tuesday ahead of data on retail sales and producer prices. Here’s what we’re watching ahead of Tuesday’s opening bell.

  • Futures tied to the S&P 500 were up 0.1%, suggesting that the broad benchmark index could beat Monday’s all-time high. Nasdaq-100 futures edged up 0.2%, pointing to gains in technology stocks after the opening bell.
What’s Coming Up
  • U.S. producer prices for May are due at 8:30 a.m. ET. Economists surveyed by The Wall Street Journal expect the producer-price index rose 0.5% in May from the prior month.
  • Retail sales data for May are also due at 8:30. Economists estimate that the Commerce Department report will show retail sales declined 0.7% in the month.
  • Earnings are due from

    Oracle


    ORCL -0.34%

    and

    La-Z-Boy


    LZB -1.46%

    after the close.

Market Movers to Watch

A sign for Alexandria Real Estate Equities Inc. was displayed in front of the New York Stock Exchange on May 22, 2017.



Photo:

Michael Nagle/Bloomberg News

Market Facts
  • Nonfinancial companies issued $1.7 trillion of bonds in the U.S. last year, nearly $600 billion more than the previous high, according to Dealogic. By the end of March, their total debt stood at $11.2 trillion, according to the Federal Reserve, about half the size of the U.S. economy.
  • Bitcoin reached its highest level in more than two weeks Monday, trading as high as $41,046.77, buoyed by MicroStrategy completing its $500 million offering of junk bonds to buy bitcoin and by fresh comments from Tesla Chief Executive Elon Musk. By Tuesday morning it had edged down to about $40,320.
  • On this day in 1215, King John of England signed the Magna Carta, enumerating the principles of limited government, free trade, private property and the liquidation of assets to pay debts.
Chart of the Day
Must Reads Since You Went to Bed

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How Is Loki Still Alive? The Out-of-Touch Adults’ Guide To | Sidnaz Blog


Everything on the internet was wild last week. There were wild pants, wild boxing matches, and criminals who act wild on YouTube, so let’s dive in. Oh, and Loki is alive again.

Last week in wardrobe malfunctions: Pants problems plague plutocrats

It was been a big week for pants problems on the internet, starting with the bizarre appearance of former president Donald Trump’s slacks. The former most-powerful-person-on-earth spoke at a Republican event in North Carolina sporting such strange-looking pants, internet wags began wondering if he was hiding an adult diaper, or if he’d killed his tailor. But the most popular theory was that Trump had put his pants on backwards, perhaps in tribute to 1990s one-hit wonders Kriss Kross.

Sadly, the rumor probably isn’t true. According to the internet fact-checkers at Snopes.com, “photographs taken at the event and published by the visual media company Getty Images clearly show the former president on stage wearing pants with a zipper in the front.”

That really kills the buzz, but it’s still kind of funny that supporters are defending a former president by saying, “See? He does know the fly goes in front.”

The second pants-related internet flap of the week involved Adam Aron, the CEO of AMC, who seems to have neglected to wear pants at all during a recent video interview. During an appearance on Trey Collins’ YouTube show, Aron’s webcam seems to fall over, giving a brief glimpse below his neat shirt and tie, revealing bare, old-white-dude legs. It’s still not known whether Aron was wearing teeny shorts, underwear, or nothing at all, and so far, the CEO has declined to comment.

Personally, I think the “accidental” fall of the webcam was calculated to draw even more internet attention to AMC. Aron has been pretty enthusiastic about his company’s recent meme-friendly-cash influx, and what better way to keep the meme-dollars flowing in than become a meme yourself?

Last week in meme-sports: Logan Paul vs. Floyd Mayweather Jr.

YouTube celebrity Logan Paul stepped into the ring with retired, undefeated boxing champion Floyd Mayweather Jr. this week, earning 20 million bucks for dancing around for eight rounds in an exhibition match. Despite Paul outweighing Mayweather by 40 pounds and being nearly two decades his junior, the match ended in a draw as there were no judges or scoring and no one got knocked out.

Mayweather, who reportedly took home 100 million for the “fight,” retains his undefeated record, although how much of his legacy as a great boxer remains intact is open to debate.

Boxing has a long history of ridiculous showbiz bouts—Muhammad Ali vs. Japanese professional wrestler Antonio Inoki, Rocky Balboa vs. Clubber Lang—but this one is notable for both its scale (over a million people streamed the pay-per-view fight, presumably, hoping to see Paul knocked out) and the blatancy of the cynicism. No one is even bothering to pretend it was anything but a money-grab. Mayweather summed it up best in a post-fight interview when he said, “They say, ‘It’s not all about the money.’ Well, your kids can’t eat legacy…The patches on my trunks [earned me] $30 million alone.”

“When it comes to legalized bank robbing, I’m the best,” he added.

This week in streaming: Loki comes to Disney+

Marvel and Disney continue their full-frontal assault on all entertainment with the release of Loki, a MCU series featuring the trickster god of the title teaming up with a group of metaphysical cops to catch a temporal criminal who is disrupting the timeline of the universe.

Loki’s high concept—ages ago, nameless gods created a heavily armed, all-powerful bureaucracy to punish anyone who alters the central timeline—helps explain how a character who died several films ago is back, and the light tone is a perfect fit for Loki. I’m not even a huge superhero movie guy, but watching unpredictable trickster Loki confronting the banal oppression of an overbearing bureaucracy makes great television. It’s like going to the DMV armed with an infinity stone.

This week in video games: Battlefield 2024 reveal trailer

Gamers everywhere are flipping the hell out over the reveal video for upcoming shooter Battlefield 2042. The trailer is all in-engine footage and shows off lasers, wingsuits, robot dogs, high-tech hover-tanks, fighter jets, a helicopter being taken out by an ATV driven off a skyscraper, and a battle that takes place inside of a tornado. I’m exhausted just watching it.

Battlefield 2042 will feature online battles with 128 players that can be played across platforms, destructible environments, and dynamic weather like sandstorms and a freakin’ tornado. I think I need a towel and a cold drink. It launches on PC, PlayStation, and Xbox consoles on October 22, just in time for the holiday, buying-everything season.

Viral video of the week: What pretending to be crazy looks like

The almighty YouTube algorithm is feeding just about everyone a fascinating video from JCS- Criminal Psychology called “What pretending to be crazy looks like.” The hour-long crime documentary presents uncut interrogation footage with minimal narration, and if you’ve ever wondered what it looks and sounds like when suspects try to beat their raps by acting crazy, prepare to be taken deep inside the interrogation chambers of three suspects, one of whom was eventually deemed legally insane, and two others who aren’t fooling anyone, least of all their interrogators. It’s a deep dive down a very specific rabbit hole, and as a true crime fan, I’m totally here for it. If you have a spare 20 hours or so, check out the rest of JCS – Criminal Psychology. These are the best things on YouTube, hands down.

 



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Novavax, AMC, Orphazyme, Corsair Gaming: What to Watch When the | Sidnaz Blog


Novavax


NVAX 2.31%

shares got a shot in the arm from positive results for its Covid-19 vaccine. Bitcoin took another leg higher over the weekend after Elon Musk again took to

Twitter.


TWTR 0.33%

Here’s what we’re watching as Monday’s trading activity heats up.

  • U.S. stock futures edged up, pointing to a fresh record for the S&P 500 after it ended last week at an all-time high.
  • Futures tied to the S&P 500 ticked up less than 0.1%. The broad market gauge has climbed for three consecutive weeks. Nasdaq-100 futures added 0.3%, pointing to a moderate rise in technology stocks at the opening bell.
  • Bitcoin jumped 6.6% from its level at 5 p.m. ET Friday to trade around $39,300, according to CoinDesk. Elon Musk tweeted Sunday that

    Tesla


    TSLA -0.04%

    will resume accepting the cryptocurrency as a form of payment when miners use more clean energy.

What’s Coming Up
Market Movers to Watch
  • Novavax jumped 11% premarket after it released test results showing that its Covid-19 shot had an overall efficacy of 90%, and 100% against moderate and severe disease.

Nita Patel, senior director of vaccine development at Novavax, holds a vial of Novavax’s Covid-19 vaccine, Feb. 11, 2021.



Photo:

T.J. Kirkpatrick for The Wall St

  • Marqeta


    MQ 5.35%

    was up 2.4% before the open, which would bring the payment card-issuing technology company’s shares back close to their highest level after its IPO last week.

  • Orphazyme


    ORPH -55.57%

    was continuing its wild ride, adding 29% ahead of the bell. The Denmark-based biopharmaceutical company’s shares rocketed higher last week only to give up most of the gains. The company said it was unaware of the reason for the volatility.

  • Meme-stock favorite

    AMC Entertainment


    AMC 15.39%

    added 1.1%. A multipronged bet on AMC boomeranged this month on Mudrick Capital Management, the latest hedge fund to fall victim to swarming day traders.

  • Corsair Gaming


    CRSR 3.29%

    shot 14% higher premarket. The stock has seem some chatter over the weekend among the Reddit crowd.

  • Senseonics,


    SENS 10.77%

    a maker of implantable glucose monitors for diabetics, was also rocketing higher, with a 14% premarket gain.

  • Chipotle Mexican Grill


    CMG 1.64%

    shares gained 2.4%. Analysts at Raymond James lifted their rating on the stock, pointing to recent menu price hikes.

Market Facts
  • The Nasdaq Biotechnology Index rose 6% last week, after the FDA gave the green light to Biogen’s Alzheimer’s drug Aduhelm on Monday.
  • About 83% of recorded-music revenue in the U.S. last year came from streaming, compared with less than 7% in 2010, when paid downloads and CD sales still drove the bulk of the industry’s revenue, according to data from the Recording Industry Association of America.
  • On this day in 2000, the SEC, the FBI, and the U.S. Attorney for the Southern District of New York cracked down on more than 100 alleged mobsters and their cronies, claiming that the mafia—in cahoots with brokers, investment bankers, a money manager, and a retired New York City cop—manipulated the prices of 19 stocks, defrauding thousands of investors out of an estimated $50 million. 
Chart of the Day
  • Tesla and other companies that hold the notoriously volatile cryptocurrency often must record impairment charges when its value falls.
Must Reads Since You Went to Bed

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AMC Bet by Hedge Fund Unravels Thanks to Meme-Stock Traders | Sidnaz Blog


A multipronged bet on

AMC Entertainment Holdings


AMC 13.03%

boomeranged this month on Mudrick Capital Management LP, the latest hedge fund to fall victim to swarming day traders.

Mudrick’s flagship fund lost 10% in just a few days as a jump in AMC’s stock price unexpectedly triggered changes in the value of derivatives the fund held as part of a complex trading strategy, people familiar with the matter said.

The setback comes months after a group of traders organizing on social media helped send the price of

GameStop Corp.


GME 2.05%

and other stocks soaring in January, well beyond many investors’ views of underlying fundamentals.

The development prompted many hedge funds to slash their exposure to meme stocks. Mudrick Capital’s losses highlight how risky retaining significant exposure to such companies can be—even backfiring on a hedge-fund manager who was mostly in sync with the bullishness of individual investors.

Jason Mudrick,

the firm’s founder, had been trading AMC stock, options and bonds for months, surfing a surge of enthusiasm for the theater chain among individual investors. But he also sold call options, derivative contracts meant to hedge the fund’s exposure to AMC should the stock price founder. Those derivative contracts, which gave its buyers the right to buy AMC stock from Mudrick at roughly $40 in the future, ballooned into liabilities when a resurgence of Reddit-fueled buying recently pushed AMC’s stock to new records, the people said.

Day traders took their first run at AMC shares in late January.



Photo:

Bing Guan/Bloomberg News

As part of the broader AMC strategy, executives at Mudrick Capital were in talks with AMC to buy additional shares from the company in late May. On June 1, AMC disclosed that Mudrick Capital had agreed to buy $230 million of new stock directly from the company at $27.12 apiece, a premium over where it was then trading.

Mudrick immediately sold the stock at a profit, a quick flip that was reported by Bloomberg News and that sparked backlash on social media.

“Mudrick didn’t stab AMC in the back…They shot themselves in the foot,” read one post on Reddit’s Wall Street Bets forum on June 1. Other posts around that time referenced Mudrick as “losers,” “scum bags” and “a large waving pile of s—t with no future.” Members of the forum urged each other to buy and hold.

Inside Mudrick, executives were growing apprehensive as the AMC rally gained steam. The firm’s risk committee met on the evening of June 1 after the stock closed at $32 and decided to exit all debt and derivative positions the following day.

It was a day too late.

AMC’s stock price blew past $40 in a matter of hours June 2, hitting an intraday high of $72.62. Call option prices soared amid a frenzy of trading that Mudrick Capital contributed to and by the end of the week, the winning trade had turned into a bust. Mudrick Capital made a 5% return on the debt it sold but after accounting for its options trade, the fund took a net loss of about 5.4% on AMC.

Mr. Mudrick’s fund is still up about 12% for the year, one of the people said. Meanwhile, investors who bought AMC stock at the start of the year and held on have gained about 2000%.

The impact of social media-fueled day traders has become a defining market development this year, costing top hedge funds billions of dollars in losses, sparking a congressional hearing and drawing scrutiny from the U.S. Securities and Exchange Commission. More hedge funds now track individual investors’ sentiment on social media and pay greater attention to companies with smaller market values whose stock price may be more susceptible to the enthusiasms of individual investors.

Mr. Mudrick specializes in distressed debt investing, often lending to troubled companies at high interest rates or swapping their existing debt for equity in bankruptcy court. Mudrick manages about $3.5 billion in investments firmwide and holds large, illiquid stakes in E-cigarette maker NJOY Holdings Inc. and satellite communications company

Globalstar Inc.

from such exchanges. The flagship fund reported returns of about 17% annually from 2018 to 2020, according to data from HSBC Alternative Investment Group.

But distressed investing opportunities have grown harder to find as easy money from the Federal Reserve has given even struggling companies open access to debt markets. Mr. Mudrick has explored other strategies, launching several SPACS and, in the case of AMC, ultimately buying stock in block trades.

Mr. Mudrick initially applied his typical playbook to AMC, buying bonds for as little as 20 cents on the dollar, lending the company $100 million in December and swapping some bonds into new shares. Theater attendance, already under pressure, had disappeared almost entirely amid Covid-19 pandemic lockdowns, and AMC stock traded as low as $2. He reasoned that consumers would regain their appetite for big-screen entertainment this year as more Americans got vaccinated.

Day traders took their first run at AMC in late January, urging each other on with the social-media rallying cry of #SaveAMC and briefly lifting the stock to around $20. AMC’s rising equity value boosted debt prices—one bond Mudrick Capital owned doubled within a week—quickly rewarding Mr. Mudrick’s bullishness. AMC capitalized on its surging stock price to raise nearly $1 billion in new financing in late January, enabling it to ward off a previously expected bankruptcy filing.

Around that time, Mr. Mudrick sold call options on AMC stock, producing immediate income to offset potential losses if the theater chain did face problems. The derivatives gave buyers the option to buy AMC shares from Mudrick Capital for about $40—viewed as a seeming improbability when the stock was trading below $10.

Mr. Mudrick remained in contact with AMC Chief Executive

Adam Aron

about providing additional funding, leading to his recent share purchase. But he kept the derivative contracts outstanding as an insurance policy, one of the people familiar with the matter said.

Write to Matt Wirz at [email protected] and Juliet Chung at [email protected]

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Vertex Pharmaceuticals, AMC, Uber, Dave & Buster’s: What to Watch | Sidnaz Blog


Stock futures are inching up, a day after the S&P 500 notched its 27th record close of the year amid the push-pull of rising inflation versus a healing job market. Here’s what we’re watching ahead of Friday’s trading start.

What’s Coming Up
  • The University of Michigan’s consumer sentiment index, due at 10 a.m. ET, is expected to rise to 84.4 during the opening weeks of June from 82.9 at the end of May.
  • The Group of Seven summit is under way in England. Leaders from the world’s seven largest advanced economies will discuss the recovery from the Covid-19 pandemic, climate change and other issues.
Market Movers to Watch
  • Shares of drug maker

    Vertex Pharmaceuticals


    VRTX 1.50%

    are looking sickly premarket, with a 15% drop. It said it will stop developing an experimental drug after it was shown in a midstage study to be unlikely to provide a clinical benefit to people with a rare genetic disease.

Vertex Pharmaceuticals’ building in Boston, Oct. 19, 2016.



Photo:

Scott Eisen/Bloomberg News

  • AMC Entertainment


    AMC -13.23%

    jumped 6.6% premarket. Late in Thursday’s session, AMC’s credit rating was upgraded by two notches, to CCC+ from CCC- , by S&P Global Ratings, as it pointed to the movie theater operator’s recent equity capital raises.

  • Skee ball anyone?

    Dave & Buster’s


    PLAY -3.78%

    shares climbed 5.2% premarket after the entertainment-venue chain reported a profit for its latest quarter as revenue picked up with consumers heading back into its locations.

  • Cruise lines caught the Covid blues. Two guests sharing a room on Royal Caribbean Group’s Celebrity Millennium tested positive for Covid-19 toward the end of the cruise, the company said. The ship was sailing out of the Caribbean island of St. Maarten, one of the company’s first voyages to restart out of the region.

    Royal Caribbean


    RCL -2.33%

    shares slipped 2% premarket, and

    Carnival


    CCL -2.04%

    was also down, by 1.4%.

  • Uber


    UBER 0.83%

    is up 0.6% premarket. A Chinese competitor, Didi Chuxing Technology, made its IPO papers public on Thursday, and could fetch a valuation upward of $70 billion. Didi is known for successfully pushing Uber out of China, winning a bruising price war that ended in 2016. But Uber also stands to benefit from Didi’s success, as it now owns a 12.8% stake in Didi.

  • Chewy


    CHWY 2.03%

    shares slipped 1.3% premarket after the pet-products retailer said it was facing labor shortages and supply problems that led it to run out of some items. Still, investors were tossed a bone when it also surprised Wall Street with a quarterly profit.

Market Facts
  • While the pandemic has hit India hard, its stock market has surged. The MSCI India index hit record highs this week and is now up 14% for the year to date.
  • Uranium this week traded at $32.05 a pound, according to UxC LLC, a nuclear-fuel data and research company. Prices reached an all-time high of $136 a pound in 2007, according to records going back to 1987.
  • On this day in 1930, trying to rebuild public confidence in the market, New York Stock Exchange President Richard Whitney had the press witness him making a bid, with his own money, of $160 a share for a 60,000-share block of U.S. Steel stock. Shortly thereafter the stock sank below $150, on its way to $21 in the market bottom of 1932.
Chart of the Day
  • Money is pouring into stocks that get good grades on issues like building a diverse workforce and reducing carbon emissions. But figuring out how high- and low-rated companies perform is nearly impossible because of inconsistencies in the way they are rated.
Must Reads Since You Went to Bed

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