The world’s indices have spent a large portion of 2022 in the red, including some of the most popular in the US, like the S&P 500, which encompasses around 80% of the American equity market by capitalization. However, just because SPY is down doesn’t mean all the stocks it lists are down too – case in point, Twitter. So, let’s look at analysts' forecasts for this social platform and the overall US market.
The S&P 500 Index was founded in the 1950s and calculated by Standard & Poor’s (the company named after), tracking the stock performance of the 500 leading publicly traded companies in the US.
As you probably know, these companies haven’t exactly been doing well over this year, despite ending 2021 on a strong note and the index continuing the gains into February 2022. Shortly afterwards, though, started a sharp decline that’s lasted for 9 months so far and has led to a YTD loss of over 24% for the S&P 500.
In early 2022, it seemed that the overall market was beginning to return to normalcy – coronavirus restrictions were being lifted, and air travel and freight transport were being resumed. Even though the US market had been called overvalued before the pandemic, things were still heading positively.
Any positive sentiment seemed to fade away with the aggravation of the geopolitical situation in Europe. One might think that, geographically, American companies are far enough away from this conflict. Still, the energy crisis and supply disruptions are affecting the world, and international markets are feeling the sting.
Inflation hit an all-time record to touch a 40-year high of 8.6% in the US, and the Fed started not so slowly but steadily hiking interest rates to drive down prices. All this and more is what’s landed the market in its current predicament, and even with all the declines, many prominent investors still believe the market is overvalued.
One of these aforementioned overvalued companies is Twitter. The company's stock is characterized by sharp ups and downs, and the net result is a 15% fall over the year so far.
This rollercoaster ride is largely down to the actions of Elon Musk, who we’re sure doesn’t need an introduction at this point. Let’s reconstruct the chronology here because there have been uncountable events, and it can be easy to lose track.
Twitter's shares had been slowly and surely falling through 2022 until suddenly, Mr Musk knocked at the door in April. He soon became Twitter's largest shareholder, buying 9.1% of the company, and not long after, he announced that he wanted to buy Twitter outright at the grand old price of $54.2 per share – trust Musk to get a 4/20 joke in there. The company's shares, of course, shot up in value, especially given shares were trading at around $40 at the time, and the board (after a short deliberation) approved the deal.
It was smooth sailing for a while until Musk came out of the blue to announce he was putting the deal on hold in May, citing his concerns over the number of bots on the platform. While Elon was waiting, the stock reacted with an immediate and severe drop, and Musk's subsequent announcement that he was still going to buy the platform didn't do much to save the day.
In July, the techno king decided to withdraw the offer entirely because, according to him, Twitter broke the terms of the deal and misrepresented the high percentage of bots and fakes. In return, Twitter representatives said, “we’ll see you in court” to Elon and argued that he’d decided to back out of the agreement because of declines in the shares’ price – a phenomenon that just got worse as the deal got more convoluted.
Fast forward to October, when the court hearings begin, and what does Musk do? Well, he goes ahead and backtracks once again to say he will, in fact, buy Twitter at the agreed-upon price of $54.20 despite continued losses in the stock. Got whiplash yet? Us too. Perhaps he decided to avoid the reputational loss, fines, and compensation that would surely befall the businessman if he lost the case. But either way, Twitter's stock popped a solid 20% before trading was briefly halted and had its best day since the deal was announced in April.
Is this the end of this truly fascinating and Netflix-worthy series? Knowing Elon, it’s unlikely, and we can probably expect a sequel of some kind. What is clear, though, is that Musk will continue to tweet, and it will likely continue to impact Twitter’s stock and other securities like Tesla.
There is a potential opportunity for investors to make money on the sudden advance decline of Twitter and Elon-related stocks. As for long-term investments, there is far less clear, but experts agree that we shouldn’t expect any growth in the next year. You never know, though: Elon is almighty.
We’re not likely to see much growth in the overall US market either, despite a couple of brief hints and a recovery at the start of October. There is no clarity on when the world will come close to economic recovery. However, we can be sure that even in a situation like this, it’s always possible to find promising opportunities that counter general market trends.