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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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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Bitcoin on the Balance Sheet Is an Accounting Headache for Tesla, | Sidnaz Blog


Elon Musk’s

curious

Twitter

war with bitcoin is expected to hit

Tesla Inc.’s


TSLA -0.04%

bottom line this quarter.

Mr. Musk is widely blamed by investors for starting the digital currency’s most punishing slide of the year after announcing on Twitter that Tesla would stop accepting bitcoin as payment for its electric vehicles. He added fuel to the fire earlier this month, tweeting breakup memes with “#bitcoin” and a broken-heart emoji. Bitcoin has slumped 30% since the original May 12 tweet.

On Sunday, Mr. Musk said Tesla would resume bitcoin transactions when miners increase use of renewable energy sources. The price jumped over 6% from its Friday 5 p.m. ET level to trade at about $39,300 early Monday. He also said that Tesla had sold only about 10% of its bitcoin holdings earlier this year to confirm that the cryptocurrency “could be liquidated easily without moving market.”

Tesla had about $1.3 billion in bitcoin parked in its treasury at the end of the first quarter and announced the bitcoin purchase in February to “diversify and maximize returns on our cash.”

Software developer

MicroStrategy Inc.

and a handful of other companies, including payment app provider

Square Inc.,

have made similar investments. Some have touted bitcoin as a store of value, or a more modern version of gold.

But companies holding bitcoin in their treasuries face an accounting risk: Because bitcoin and other digital assets are considered “indefinite-lived intangible assets,” rather than currencies, any decrease in their value below what the company paid for them—even a temporary one—can force a company to write down the value and take an impairment charge.

Such assets must be tested for impairment at least annually, or if the price falls below the company’s carrying value. The volatile nature of bitcoin makes quarterly revaluations routine. Once the company takes the charge, that resets the fair value of the asset. Conversely, if the price has gone up, the company can’t record a gain; it can do that only when it sells the asset.

Tesla, which didn’t respond to a request for comment, is projected to post a profit of 96 cents a share in the second quarter, according to analysts polled by FactSet.

Bitcoin’s volatility, combined with this accounting treatment, makes it hard for corporate officers to manage crypto holdings as cash, which makes it less useful as a reserve asset, said Jennifer Stevens, an accounting professor at Ohio University.

“The accounting is a little bit incongruous with the underlying purpose,” she said.

Few other companies have been eager to jump into bitcoin. A February survey from research firm

Gartner

found only 5% of chief financial officers questioned planned to hold bitcoin as a corporate asset this year. Of the finance chiefs surveyed, 84% said they never planned to hold it.

Bitcoin’s value has slumped since Elon Musk said last month that Tesla would stop accepting the cryptocurrency as payment for its electric vehicles.



Photo:

michele tantussi/Reuters

Tesla initially disclosed a $1.5 billion investment in bitcoin on Feb. 8 but didn’t specify how many bitcoins it held or the average price it paid. The change to its investment policy, however, was made in January, and the price of bitcoin averaged about $35,400 between Jan. 1 and Feb. 8, according to data from CoinDesk. That means Tesla likely held around 37,000 bitcoins after slightly trimming its position in the first quarter.

As of Friday afternoon, bitcoin hovered just above $37,000, and it dropped as low as $30,202 last month.

It is likely Tesla will take an impairment charge on its bitcoin holdings this quarter, said Wedbush Securities analyst

Dan Ives.

He added that the company was likely buying across January and at least some of those holdings are now being held at a loss.

“If bitcoin is below $30,000, or in the low $30,000s [at the end of the second quarter], the impairment would have to be large,” he said. It could end up being similar in size to the $101 million gain Tesla posted in the first quarter on the sale of some of its holdings, he said.

“It went from a tailwind to a real headwind,” he said.

Tesla’s results in recent periods have been propped up by one-time gains. In addition to the gain on the bitcoin sale in the first quarter, the company recorded a $518 million gain on the sale of regulatory credits to other auto makers to help them meet emissions mandates. That pushed the company into the black for the period—Tesla posted net income of $438 million, or 93 cents a share.

Tesla wouldn’t be the first company to take a big charge on its bitcoin holdings.

MicroStrategy, which sells business software and holds about 92,000 bitcoins worth more than $3 billion, already has posted quarterly losses because of this accounting treatment, both in last year’s third quarter and this year’s first.

Last week, it said it expects to take a charge of at least $285 million on its bitcoin investment in the current period, which will push it to another quarterly loss.

SHARE YOUR THOUGHTS

Should more companies hold bitcoin or stay away from the cryptocurrency, and why? Join the conversation below.

For now, MicroStrategy is just accepting the accounting practice, Chief Executive

Michael Saylor

said in an interview. He said he sees bitcoin as a better value than the U.S. dollar and has made buying and holding it as much of a company priority as software sales.

“This looks risky to a person who doesn’t understand bitcoin,” he said, “but it is by far the least risky way to grow the company.”

The company’s bitcoin strategy has made Mr. Saylor a hero in cryptocurrency circles but has also made MicroStrategy’s stock as volatile as bitcoin. The shares were trading at $135 last August when the company announced its new bitcoin strategy. They skyrocketed to a record $1,273 by September but have been falling since then, closing Friday at $516.44.

It is harder to determine how much Tesla’s stock price has been affected by its bitcoin strategy since it is a far smaller part of the company’s holdings, but the stock has been falling since the February announcement. It closed at $609.89 Friday, down 29% from Feb. 8.

Bitcoin, Dogecoin, Ethereum: Cryptocurrency Markets

Write to Paul Vigna at [email protected]

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Oil Hits Pandemic High as Investors Bet on Green Energy | Sidnaz Blog


Some investors are wagering that Wall Street’s preference for green energy will depress spending on oil extraction, setting the stage for supply shortages and higher fuel prices. 

The bets come as money managers line up trillions of dollars for wind, solar and other renewable programs and expenditures on oil projects tumble. The drop in fossil-fuel spending is becoming so severe that energy companies could struggle to quench the world’s thirst for oil, some analysts say.

Crude is still expected to remain in high demand over the next decade to make transportation fuels and petrochemicals used for plastics and other household products. U.S. consumption has surged lately following the worst of the coronavirus pandemic, and output cuts by the Organization of the Petroleum Exporting Countries have given prices a further boost. 

U.S. crude hit $71.48 a barrel Monday, its highest level in more than 2½ years, and has roughly doubled since the end of October. Some traders are using options, which allow the holder to buy or sell an asset at a specific price in the future, to wager on prices hitting $100 by the end of next year

Even after OPEC and its allies lift output in the months ahead, some analysts think production will struggle to catch up to demand, which the International Energy Agency projects will rise at least through 2026. Spending on oil extraction fell last year to about $330 billion, less than half the total from its 2014 record, according to research firm Wood Mackenzie. That figure is expected to rise just modestly this year and in the years ahead.

Leigh Goehring,

managing partner at commodities-focused investment firm Goehring & Rozencwajg Associates, said he thinks prices will soar in coming years as consumption tops production capacity for a sustained period for the first time ever. His firm lifted its investments in energy producers during last year’s crash and has maintained those holdings. 

“This is the basis for the next oil crisis,” he said. “We’re in uncharted territory.”

Analysts say an oil-price surge could happen like this: As more people resume travel following the pandemic, demand is expected to rise. That would allow OPEC to ease supply restrictions and lower global inventories of crude. If consumption continues climbing beyond 2022 as many expect, the world would then need more oil from the same companies currently being told by investors to limit spending, resulting in a supply shortfall. 

Some analysts expect surging demand and limited supply to lower global inventories and cause shortages.



Photo:

PHOTO: Drew Angerer/Getty Images

OPEC has the ability to quickly increase production, and there are currently ample reserves that could be tapped to respond to price spikes. But many on Wall Street are retreating from the fossil-fuel industry, leaving investors questioning whether companies would be able to raise enough money to fill any longer-term supply gaps. 

SHARE YOUR THOUGHTS

What impact will Wall Street’s preference for green energy have on oil prices?

In recent years, growing output from U.S. shale producers and giant oil companies suppressed prices. Now, many analysts doubt that these companies will rapidly beef up spending in the face of industry consolidation and mounting environmental pressure. Energy firms have recently slashed the value of their assets by tens of billions of dollars as the sector copes with last year’s wave of bankruptcies and project setbacks. 

Planned investment in oil supply globally falls about $600 billion short of what will be needed to meet projected demand by 2030, according to JPMorgan Chase & Co. analyst

Christyan Malek.

Pressure to deliver cash to shareholders, partly driven by worries about the long-run outlook for oil demand, has limited the industry’s ability to plow money into new projects, he said.

“It’s just hard to see where the capital is going to come from to grow at a rate that will be needed from 2022,” said

David Meaney,

founding principal of Assert Capital Management LP. The Dallas-based hedge fund is positioning for higher oil prices through futures and options.

The wagers are a reminder that the unprecedented transition to renewables and electric vehicles is still in its early stages and could go through several phases. It also shows the challenges facing producers like

Exxon Mobil Corp.

,

Chevron Corp.

and

Royal Dutch Shell PLC.

In addition to concerns about spending and shareholder returns, they are contending with mandates to limit environmental damage. Shell said last week that it would accelerate efforts to cut emissions following a Dutch court ruling ordering the company to take more drastic action.

As the economy recovers from the pandemic, the question confronting the energy industry is whether demand will eventually fall to match limited supplies, investors say. That reverses a decadeslong paradigm of wondering if production can catch up to consumption, with Wall Street debating uncertain estimates about the speed of the renewable transition. 

“I’m bullish on electric vehicles. It still takes time before they can take a meaningful chunk out of oil demand,” said

Jason Bordoff,

a former Obama administration energy adviser and the founding director of Columbia University’s Center on Global Energy Policy.

Another obstacle for producers: declining output from existing wells over time. The number of rigs drilling for oil in the U.S. remains about 60% below levels from the end of 2018 even as prices have surged, figures from

Baker Hughes

show. 

“Investors have made it clear to the energy sector: ‘Don’t spend a lot of money,’” said

Rob Thummel,

senior portfolio manager at energy asset manager Tortoise. “Boards and management teams have to listen to the shareholders.”

The energy industry isn’t alone in its cautious approach. Miners, which burned through cash the last time industrial metals prices shot higher, have also been reluctant to drive money into projects because investors have encouraged greater discipline.

Some analysts argue that concerns about a dearth of oil are overstated, particularly when large suppliers are still intentionally withholding copious amounts due to coronavirus disruptions. Producers and investors might be less disciplined in limiting capital spending and supply if prices surge and they could profit, they say.

But for now, many are positioning for shortages.

Hayal Ahmadzada,

chief trading officer at the trading arm of Azerbaijan’s national oil company, drives a

Tesla Inc.

electric car but expects crude to rise above $100 a barrel next year. 

“The transition has to be very careful to avoid the big disruptions,” he said. 

Investors are lining up huge sums to back wind, solar and other renewable projects, but a lack of financing for oil producers could have unintended consequences, some investors say. 



Photo:

PHOTO: Bing Guan/Bloomberg News

Write to Amrith Ramkumar at [email protected] and Joe Wallace 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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GameStop Doesn’t Have a Blank Check After All | Sidnaz Blog


GameStop’s stock price slid as much as 12% after hours Wednesday following the company’s results.



Photo:

nick zieminski/Reuters

Apparently, even meme-stock investors have their limits.

GameStop’s


GME 0.85%

fiscal first-quarter results reported Wednesday afternoon were encouraging in many respects. Revenue grew for the first time in three years, surging 25% year over year to almost $1.3 billion for the quarter ended May 1. That came thanks mostly to strong sales of the new PlayStation and Xbox consoles that—while still sharply limited in supply due to the global chip production shortage—drove a 37% increase in GameStop’s hardware sales to about $704 million for the quarter. The company has also been able to boost its cash reserves and reduce its debt, due to selling nearly $552 million of its shares during the quarter.

But like fellow meme-stock champion

AMC Entertainment,

GameStop seems to have discovered that individual investor love isn’t a blank check. The company said Wednesday it intends to file papers to sell up to five million shares, after selling 3.5 million shares in April.

GameStop’s stock price slid as much as 12% after hours Wednesday following the company’s results and a truncated conference call that again took no questions. AMC’s stock has fallen 21% since it announced its latest stock sale last week.

But even with such a sharp after-hours drop, GameStop’s shares remain up an absurd 1,300% from the start of the year. Which means the company will need all the help it can get to justify investors’ bets that it can renovate a videogame retail chain for an age when most games are sold digitally. The latest results also laid out starkly what a challenge that will be.

Game software, once GameStop’s largest business, fell 5% year over year during the quarter to about $398 million. This wasn’t an industrywide problem; NPD’s data shows that sales of videogame content across digital and physical channels in the U.S. rose 14% during the comparable three-month period ending in April.

Strong demand for gaming products such as the newest consoles are keeping GameStop in the game for now. But the company’s long-term revival can’t depend on machines that are updated once every seven or eight years. And GameStop is still in the staffing-up phase of whatever its plan is. The company formally installed Chewy co-founder

Ryan Cohen

to the chairman slot following a successful shareholder vote on Wednesday. It also names a new chief executive and chief financial officer—both from executive roles at

Amazon.com.


AMZN 0.52%

Mr. Cohen told shareholders Wednesday that GameStop’s turnaround will take time. He also said the company was trying to do something in retail that no one else has done before. GameStop investors seem inclined to give the company time—but not at any price.

Write to Dan Gallagher at [email protected]

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Lordstown Motors Amends Annual Filing With Going Concern Notice | Sidnaz Blog


Lordstown Motors headquarters in Ohio.



Photo:

Dustin Franz/Bloomberg News

Electric-truck startup

Lordstown Motors Corp.


RIDE -16.27%

disclosed in a new regulatory filing Tuesday that it doesn’t have sufficient cash to start commercial production and has doubts about whether it can continue as a going concern through the end of the year.

The company amended its annual report to include the going-concern notice, which can flag survival problems for businesses within the next 12 months. The warning comes as new challenges emerge for the two-year-old company that is trying to convert a former

General Motors Co.

plant in Ohio to produce electric pickup trucks. It has said its first model, the Endurance, will start production in September.

Lordstown Motors Chief Executive

Steve Burns

said on a call with analysts in late May that the startup would need to raise more capital to hit its target of building 2,200 pickup trucks by year-end. The company said at the time that higher-than-expected costs were accelerating its cash burn and that it would finish the year with between $50 million and $75 million on hand.

The company was among a number of new electric-vehicle startups that went public last year through reverse mergers with special-purpose acquisition companies, or SPACs. Lordstown raised $675 million from its reverse merger last fall, a deal that valued the aspiring truck maker at about $1.6 billion.

The company didn’t immediately respond to requests for comment.

More to come…

Write to Ben Foldy at [email protected]

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Stitch Fix, Coupa Software, Clover Health, Tesla: What to Watch | Sidnaz Blog


U.S. stock futures wavered, suggesting major indexes would turn in a mixed performance after the opening bell in an extension of the recent choppy but range-bound trading.

  • S&P 500 futures were flat. Futures on the Dow Jones Industrial Average slipped 0.2%. Contracts for the tech-heavy Nasdaq-100 edged up 0.2%.
  • Yields on 10-year Treasury notes ticked down to 1.553% from 1.570%. The dollar is up and oil prices are down slightly. Read our full market wrap here.
What’s Coming Up
Market Movers to Watch
  • Stitch Fix


    SFIX 4.36%

    : The online apparel company’s losses narrowed in the fiscal third quarter as sales jumped 44%, lifted by an increase in customers who took their shopping online. Shares leaped 14% premarket.

The Nasdaq exchange in New York displays advertising for Stitch Fix’s initial public offering in 2017.



Photo:

Richard B. Levine/Levine Roberts/Newscom /Zuma Press

  • Shares of

    Clover Health Investments

    soared after emerging as the latest target for retail traders on Reddit forums. The health-care company’s share price rose over 32% Monday and is up another 13% on Tuesday in premarket trading.

  • Shares of

    Coupa Software


    COUP 2.82%

    dropped 7.9% before the bell. The company forecast that it would post a loss in its 2022 fiscal year and named Tony Tiscornia as its new chief financial officer.

  • Tesla


    TSLA 1.01%

    shares rose 2.6%. The China Passenger Car Association said the electric-vehicle maker sold 21,936 made-in-Shanghai vehicles in China in May while exporting 11,527 cars overseas.

  • Marvell Technology


    MRVL -0.88%

    gained 4.6% after the chipmaker record quarterly sales.

  • Equity Residential


    EQR 0.74%

    fell 3.6% premarket. Shares of the real-estate investment trust had rallied in recent weeks after analysts at Morgan Stanley and BMO Capital markets had raised their target prices for the stock.

  • Another REIT,

    W. P. Carey,


    WPC -0.40%

    slipped 2.5%. The trust said it was looking to raise about $395 million in a share offering to fund potential investors and repay debt.

  • Etsy


    ETSY 2.52%

    lost 1.7% after the online crafts marketplace proposed a private offering of $1 billion in convertible senior notes late Monday.

Market Facts
  • Traders last week spent $11.6 billion on options contracts tied to AMC Entertainment Holdings, more than on the SPDR S&P 500 ETF Trust, Invesco QQQ Trust and Tesla Inc. combined, according to Cboe Global Markets data. Options on those stocks are typically among the market’s most popular.
  • Biogen shares surged 38% on Monday after U.S. regulators gave the green light to the drug known as aducanumab, the first such approval of any drug to treat Alzheimer’s in nearly two decades.
  • Demand for lithium used in batteries is expected to expand by a factor of 30 by 2030, according to the International Energy Agency. Cobalt and nickel also will be needed for batteries while copper will be used by transmission lines, electric vehicles and wind turbines. 
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‘God Told Me to Put Money Into Hertz’: Small Investors Are | Sidnaz Blog


Many small investors are beating Wall Street pros at their own game.

A basket of stocks favored by individuals has outperformed the broader market since March of last year, according to Vanda Research. This group, which includes behemoths like

Apple Inc.

and

Tesla Inc.

alongside electric-vehicle maker

NIO Inc.

and digital-payments company

Square Inc.,

has gained 68% since the beginning of March 2020, far outpacing the S&P 500’s roughly 36% climb.

And meme stocks popular with individual investors have been on a tear again. Shares of movie-theater operator

AMC Entertainment Holdings Inc.

jumped 19% Wednesday, putting them on track to almost double this month.

GameStop Corp.

has advanced 40% this month, far outpacing the S&P 500’s gain of 0.4%. Shares of

Hertz Global Holdings Inc.

have nearly tripled in May.

Short sellers who bet against GameStop, Hertz and AMC—a group targeted by many smaller investors who have favored these stocks—have lost more than $8 billion this year, according to data provider S3 Partners.

“It feels great,” said Daniel Shin, a 35-year-old individual investor based in Edison, N.J., who bought shares of AMC in January and has added to his positions since. “It feels like us against them. Like retail against Wall Street.”

This year’s reversal has riveted the financial industry and fueled a surprising revival for some apparently moribund businesses, helping AMC narrowly avert bankruptcy and paving the way for GameStop to raise money by issuing shares. Those episodes were the ultimate victory for small Main Street investors who are often derided in markets as “dumb money.”

Meanwhile, hedge funds—the “smart money” of years past—have continued to make a lackluster showing. From January through April, a weighted index tracking the performance after fees of about 1,300 hedge funds climbed 8.7%, according to data provider HFR. That lagged behind the S&P 500, which rose 11% over the same period.

The market’s upside-down turn, featuring a sustained rally in smaller companies with shaky financials and easy fortunes made by some early buyers of these shares, doesn’t make everyone happy. Analysts and portfolio managers recall that the market meltdowns of 2000 and 2008 were preceded by roaring bull markets in speculative areas such as dot-com startups and mortgage finance. When those manias ended, the broader economy paid the price.

Millions of individual investors stampeded into the market last year, enticed by zero-commission brokerages and easy-to-use investing apps, and their interest helped fuel the post-pandemic rally. That, and the fervor with which many small investors have piled into market winners, have potentially set the stage for severe selloffs if spooked investors flee hot stocks en masse.

That is in part because they are riding one of the most powerful forces in markets over the past year: momentum investing, or buying assets simply because the price is rising. The rising prices of assets from dogecoin, a cryptocurrency created as a joke, to Hertz shares have attracted buyers, whose demand has driven prices even higher. That, in turn, has drawn even more buyers, in part because of a behavior dubbed FOMO—the fear of missing out.

Data from Vanda Research show individual investors tend to pour far more money into stocks with high momentum than low momentum.

SHARE YOUR THOUGHTS

How do you think the meme-stock frenzy will end? Join the conversation below.

Paktra Som, a 35-year-old pilot based in Los Angeles, said he jumped into the market for dogecoin in 2019 and has since kept buying, looking to ride its continued ascent. Dogecoin has skyrocketed more than 6700% this year despite a recent pullback.

“If there is a large increase in volume in something and there is a clear trend of direction that it is going…the result is typically rewarding as long as you know when to sell,” Mr. Som said. “Dogecoin had no solid fundamentals to [base] my investing strategy on. But the volume of buyers was always there.”

Other investors aren’t tracking trading volumes or momentum. Rather, they are relying on their gut.

“God told me to put money into Hertz,” said Damien Roscoe, a 42-year-old electronic technician in Glenwood, Ill. “I know it sounds crazy.”

Mr. Roscoe says he made about $8,000 in profits from buying Hertz shares this spring.

A bankruptcy court recently approved a winning auction bid in which Hertz stockholders would get more than $7 a share. The stock was below $1 in March.



Photo:

Taylor Glascock for The Wall Street Journal

The car-rental company has become one of the most unlikely success stories. Hertz declared bankruptcy last year as coronavirus lockdowns and travel restrictions devastated its business. Financial professionals fretted as individual investors snapped up the shares, warning that stock in insolvent companies usually ends up worthless.

But buyers had the last laugh after a bankruptcy court this month approved a winning auction bid in which Hertz stockholders would get more than $7 a share. The stock was trading at less than $1 in March.

“Everyone was, ‘Y’all are stupid for buying stock in a bankrupt company,’” Mr. Roscoe said. “But driving around…I just believed in it.”

The recent run-up in GameStop and other stocks involves opposing camps: traditional Wall Street firms and small investors who are bucking the system. WSJ asked the same series of questions to one of each about the role of WallStreetBets in the trading frenzy. Photo Illustration: Carlos Waters

In one sign of how powerful the run for meme stocks like Hertz has been, investors who didn’t hold GameStop shares this year would have lagged behind the Russell 2000 value index by almost 1 percentage point even if they held every other stock in the gauge, according to Ted Aronson, a longtime value investor and founding partner of AJOvista, his new investment firm. Value investors seek to buy shares at a discount to their net worth, essentially sifting through out-of-favor assets for bargains.

Mr. Aronson gave $10 billion back to investors at AJO, his old firm, after a stretch of underperformance.

He compared the recent run in meme stocks and other speculative bets to the internet craze in the late 1990s.

“You just have the herd mentality bidding stuff up based on rumor or Reddit or TikTok,” Mr. Aronson said. “This is just payback for a long time when we had it relatively easy, when value investing worked really well and any monkey could do it.”

Write to Gunjan Banerji at [email protected] and Alexander Osipovich at [email protected]

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