Before the bell: interest rates and oil prices rise hand in hand

American investors are now looking at the less pleasant side of the coin. Robin Hoods rush to the aid of fallen angels.

After a positive end to the week, U.S. stock markets started Monday with concerns. Investors were still reacting to Friday’s surprisingly strong U.S. jobs report. But instead of taking it as a positive like on Friday, they pushed the S&P 500, Nasdaq, and Dow Jones indices down by 1%. The flip side was that long-term interest rates in the U.S. continued to climb on Monday, now exceeding 4%. Oil prices also extended last week’s strong rise, with a barrel of West Texas Intermediate now costing $77.3 (+4%). Shareholders of Arcadium Lithium saw gains (33.6%), as mining giant Rio Tinto (-2.0%) expressed interest in acquiring the company. Interestingly, European investors remained in good spirits, with small gains for the indices. Only Germany’s Dax and Belgium’s Bel20 ended in the red. German factory orders fell in August after two consecutive months of modest increases. In Brussels, aside from Galapagos, notable gains were found mainly among small caps: Avantium rose by another 8% (see Monday’s market alert), and Payton Planar shot up 10.5% without any news.

Chinese markets reopened this morning after a week-long holiday, currently posting a 3.8% gain, though they initially opened over 10% higher. There was some disappointment as Beijing reaffirmed a growth target of 5% and hinted at fresh stimulus, though none was immediately announced. It’s likely that Chinese investors are also pulling some funds out of Hong Kong, as the Hang Seng index is down 7.8%. PepsiCo is set to release its quarterly results later today, ahead of Wall Street’s opening.

Robin Hoods pick up a pharma and biotech company

Galapagos rose 6.6% yesterday after it was announced that biotech investor Oleg Nodelman would get a seat on the board of directors. Nodelman manages a large fund, and it was revealed in August that his firm ‘EcoR1’ had acquired a 10.7% stake in Galapagos. At that time, the stock also jumped 10%. Despite these surges, Galapagos is still trading 80% lower than it was five years ago. The company is far from developing a new drug, but has €3.4 billion in cash on hand. The company’s market value is ‘only’ €1.8 billion. Whether Nodelman can create value for the struggling shareholders or if he is mainly attracted by the discount remains to be seen. In the U.S., Pfizer, another fallen pharma giant, jumped 4% after activist Starboard Value purchased $1 billion worth of shares in the pharmaceutical company. This investor isn’t seeking a board seat right away but wants the old Pfizer management to replace the new CEO. Pfizer has lost more than 50% of its value since the end of the COVID-19 pandemic.

Short-term versus long-term

Deutsche Bank downgraded its recommendation for Syensqo from ‘buy’ to ‘hold’, causing the stock to drop by 1.9%. The analyst cited weak car sales, even though the automotive sector accounts for only 16% of the company’s revenue. However, Deutsche Bank believes the sector contributes more to profits. Last week, Syensqo announced it would buy back €300 million worth of its own shares. Investors couldn’t react due to a technical issue, likely caused by the stock no longer being listed in Paris but only in Brussels. Syensqo is a market leader in growing sectors for the automotive and aerospace industries. Its special plastics and composite materials can replace metal components, reducing weight. This will have a more fundamental impact on results than the economic conditions in the automotive sector.

Did you know…

Saudi Arabia has resumed work on the Jeddah Tower? This skyscraper, with a planned height of over 1 kilometer, aims to surpass the Burj Khalifa in Dubai (828 meters), currently the tallest building in the world.

This article was translated from Dutch and was originally published on Spaarvarkens.be.