—— US Small-caps Suffer Worst Run; Apollo Buys $8bn of Loan from UBS; Fisker Slashes EV Prices; Diabetes Drug Can Be Made for Less Than $5; Three AI-Crypto Firms to Merge Tokens; Reddit Tumbles After Short Report; NYC Congestion Pricing Wins Key Approval
1. US Small-caps Suffer Worst Run
US small-cap stocks are undergoing their most challenging stretch of performance relative to large companies in over two decades, underscoring the fervent pursuit of mega-cap technology stocks while smaller entities face pressure from elevated interest rates.
Since the start of 2020, the Russell 2000 index has advanced by 24%, trailing far behind the S&P 500’s surge of over 60% during the same period. This divergence in performance disrupts a customary trend where dynamic small-caps typically yield more robust returns for investors willing to endure heightened volatility.
The significant gap between these two widely tracked indices has widened in recent years, as small-cap stocks, particularly those with weaker balance sheets and limited pricing power, grapple with the challenges posed by high inflation and a sharp uptick in borrowing costs.
Analysts suggest that these factors have deterred many investors from engaging with smaller-cap stocks.
Source: Financial Times – US small-caps suffer worst run against larger stocks in over 20 years
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2. Apollo Buys $8bn of Loan from UBS
UBS has reached an agreement to offload $8 billion worth of loans to the private capital group Apollo, marking a step in the process of streamlining its investment bank following the acquisition of Credit Suisse last year.
Apollo initially struck a deal with Credit Suisse in 2022 to acquire its securitized products division, which also included an associated investment management contract. The recent agreement finalizes this arrangement.
This deal represents a significant advancement in UBS’s strategy to scale down Credit Suisse’s investment banking operations while prioritizing the expansion of the combined group’s wealth management business.
The securitized products business based in New York specialized in bundling various debts, including mortgages and loans for luxury items like yachts, and then selling them as securities.
Source: Bloomberg – UBS to sell $8bn of loans to Apollo
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3. Fisker Slashes EV Prices
Fisker Inc. has significantly lowered the price of its Ocean sport utility vehicle, the sole model in its lineup, as the electric-car manufacturer faces challenges in sustaining its operations.
The most substantial reduction will affect the highest-tier version of the Ocean, known as Extreme. Fisker plans to reduce the price by $24,000, marking a 39% discount, bringing it down to $37,499, as stated in an email announcement.
In addition, other variants of the vehicle will also see considerable price reductions, a strategic move by Fisker aimed at positioning the Ocean as a more accessible and compelling choice in the electric vehicle market.
The price cuts represent drastic steps for Fisker as it endeavors to navigate through liquidity difficulties and the imminent delisting of its stock.
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4. Diabetes Drug Can Be Made for Less Than $5
A recent study has raised concerns about the pricing of Ozempic, a medication produced by Novo Nordisk A/S, which is used to treat diabetes and obesity. The study suggests that Ozempic could be manufactured profitably for less than $5 a month, while Novo Nordisk charges nearly $1,000 for it in the US.
Researchers from Yale University, King’s College Hospital in London, and the nonprofit organization Doctors Without Borders found that the cost of producing a month’s supply of Ozempic ranges from 89 cents to $4.73, inclusive of a profit margin. This is in stark contrast to the monthly list price of $968.52 for Ozempic in the US, where it is administered as a weekly injection.
Novo Nordisk declined to disclose the production costs for Ozempic and its related drug for obesity, Wegovy. However, the company emphasized its commitment to ensuring public access to its widely used medications.
Novo Nordisk stated that it is investing significantly in this endeavor, with approximately $6 billion allocated for capital expenditures and an additional $11 billion earmarked for the acquisition of production facilities from Catalent Inc.
Source: Bloomberg – Ozempic, Novo’s $1,000 Diabetes Drug, Can Be Made for Less Than $5 a Month, Study Says
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5. Three AI-Crypto Firms to Merge Tokens
Three artificial intelligence companies operating on blockchain technology have announced plans to merge their respective cryptocurrency tokens. SingularityNET, Fetch.ai, and Ocean Protocol will combine their tokens into a single entity named ASI, with an anticipated fully diluted value of approximately $7.6 billion. This move aims to facilitate the development of a decentralized AI platform.
The announcement, confirmed on Wednesday, aligns with an earlier report by Bloomberg News. However, the completion of the merger depends on the approval of each community’s members.
Fetch.ai’s CEO, Humayun Sheikh, explained in an interview, “We wanted to build one of the world’s first open and decentralized networks which actually enables AGI (artificial general intelligence) to be in reach of all the stakeholders which provide support to building the network.” He emphasized that this initiative offers an alternative to the dominance of large corporations in the AI sector, highlighting the open-source and decentralized nature of the platform, which provides the necessary tools for artificial intelligence development.
Artificial Superintelligence Alliance will oversee and provide guidance for the operations of the merged token network, ensuring collaboration and alignment among the entities involved.
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6. Reddit Tumbles After Short Report
Shares of Reddit Inc. are poised to experience their most significant single-day decline since the company’s stock market debut, following the release of a report by Hedgeye Risk Management. The report has designated Reddit Inc. as a short idea, suggesting that its stock should trade approximately 50% lower than its current levels.
During Wednesday’s intraday trading, the stock dropped by as much as 15%, reaching its lowest point since March 22. Reddit’s shares had experienced a rapid ascent following its initial public offering (IPO) on March 21, during which it surged by 48% on its first day of trading, having been priced at $34 per share.
Analyst Andrew Freedman remarked, “Heading into the IPO, we put RDDT on the short bench, reflecting our belief that the stock is a fundamental short but that the days immediately following the IPO would likely be volatile and not the proper time to make it an active short.”
During its initial days of trading, Reddit shares surged by over 90%, reaching a record high close of $65.11 on Tuesday. However, Hedgeye contends that the stock is significantly overvalued and asserts that it should trade closer to its IPO price of $34.
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7. NYC Congestion Pricing Wins Key Approval
Motorists in New York City are edging closer to facing a new fee for entering Manhattan’s central business district following the approval of the nation’s inaugural congestion-pricing initiative by the Metropolitan Transportation Authority (MTA). This plan could potentially commence as early as mid-June.
During its monthly meeting on Wednesday, the board of the MTA, responsible for implementing the toll, gave the green light to the pricing structure.
Under the new scheme, most vehicles will be charged $15 for entering the borough south of 60th Street during peak hours. The primary objectives of this initiative are to alleviate traffic congestion, enhance air quality, encourage greater utilization of public transit, and generate an estimated $1 billion annually to modernize the MTA’s extensive network encompassing subways, buses, and commuter railways.
Critics argue that congestion pricing imposes a financial burden on local residents, who must pay a fee simply to return home. Additionally, concerns have been raised about the potential strain on small businesses, which may have to absorb the expense themselves or pass it on to customers.
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The content of this article comes from various financial news media such as The Wall Street Journal, Financial Times, and Bloomberg.