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After an Incredible Rally, Beware a Dead Cat Bounce

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An oil tanker stands at an oil terminal Thursday at Wilhelmshaven, Germany.

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It has been a tough year for stocks. A rally on Wednesday seemed to promise some reversal of the trend, but investors shouldn’t hold their breath.

The

S&P 500
saw its best day of the year in the last session, climbing 2.6%. What drove this rally, and is there hope for a wider turnaround? The answers: Nothing substantial, and not much.

The surge in stocks was driven by vague optimism for a diplomatic resolution to the Russia-Ukraine war and a decline in extremely high oil prices. Brent crude dropped by the most in two years, 13% on the day, boosted by an apparent plea from the United Arab Emirates to the Organization of the Petroleum Exporting Countries about increasing output.

The narrative was falling apart Thursday. U.S. stock-index futures are deep in the red again, and oil prices are already up almost 5%.

Peace in Eastern Europe is just a hope, with top diplomats from Russia and Ukraine reportedly failing to reach a cease-fire at talks in Turkey. The oil market remains incredibly tight, with no sign of getting any better; the U.A.E. also looks to have reneged on pressuring OPEC.

The full impact of the Russia-Ukraine war, including a possible recession in Europe, remains unknown, and commodity markets could get even more wild as we move into a period where sanctions on Russia really bite.

It is a familiar phenomenon: A one-day rally that stuns investors but fails to materialize into a whole lot more. Beware the dead cat bounce.

—Jack Denton

*** Join Barron’s associate editor for technology Eric J. Savitz today at noon as he speaks with Dan Niles, founder and senior portfolio manager for the Satori Fund, on how to invest in tech stocks amid the downturn. Sign up here.

***

House Passes $1.5 Trillion Spending Bill Including Ukraine Aid

The House of Representatives passed a $1.5 trillion spending package that includes emergency aid for Ukraine, after lawmakers dropped a proposal to spend $15.6 billion for Covid-19 programs from the package.

The spending bill, approved by the House late Wednesday, funds the federal government through Sept. 30, the end of the fiscal year. The bill now heads to the Senate.

The bill provides $13.6 billion in emergency aid for Ukraine, half for humanitarian and economic aid and the other half for the defense of Ukraine and U.S. allies in Eastern Europe.

Left out of the spending package was additional money for Covid-19 aid. Republicans opposed allocating more money for the pandemic, and some Democrats balked at paying for the proposal in part by taking money back from existing Covid-19 relief programs that had been earmarked for states.

With government funding set to run out at 12:01 a.m. Eastern time Saturday, the House also approved a pre-emptive measure that extends current funding levels through March 15.

What’s Next: The bill is expected to take several days to work its way through Congress before it reaches President Joe Biden’s desk.

Joe Woelfel

***

Amazon.com Plans 20-to-1 Stock Split, $10 Billion Buyback


Amazon.com

plans to split its stock 20-1, the first such move in more than two decades for the e-commerce company and following on a similar announced stock split by Google parent


Alphabet
.
Amazon also expanded its stock buyback program to $10 billion.

A stock split could make Amazon a candidate for addition to the

Dow Jones Industrial Average,
which avoids companies with high per-share prices. Apple split 7-to-1 in June 2014 from more than $600 a share to less than $100 and joined the Dow less than a year later.

Amazon shares closed Wednesday at $2,785.58 each. If that price were divided by 20, the per-share price would drop to about $139.28, MarketWatch reported.

Amazon shares have gained 4,579.2% since it last split its stock in 1999, according to Dow Jones Market Data, pushing its per-share price to nearly $2,800. The shares surged nearly 7% in after-hours trading.

Amazon’s share repurchase is also the largest in the company’s 25 years in the public markets. It replaces a $5 billion repurchase plan set up in 2016 that has bought back just $2.12 billion so far, according to a Securities and Exchange Commission filing.

What’s Next: Amazon shareholders will vote on the plan at the May 25 annual meeting. The company plans to execute the split on or about June 3 for shareholders of record as of May 27.

Liz Moyer

***

Biden Presses Plan to Encourage U.S. Chip Making

Biden met with executives from tech companies at the White House, as he promotes semiconductor chip manufacturing in the U.S. He said passing the Bipartisan Innovation Act would ease the global chip shortage and make the economy more productive.


Micron Technology

wants to make a multibillion-dollar investment in semiconductors, and


Samsung Electronics

has committed $17 billion to build a semiconductor facility in Texas and employ 2,000 people.

Semiconductor chips the size of a fingertip power nearly everything from smartphones to computers to appliances. Although chips were invented in the U.S., the country barely makes 10% of the world’s supply, putting us “at the mercy of shortages” that can close factories, Biden said.

Michigan Gov. Gretchen Whitmer said the chip shortage cost North American auto makers the production of an estimated 2.2 million vehicles in 2021, driving up costs and jeopardizing jobs. The chips also raised automobile costs nationwide, contributing to inflation.

Elizabeth Door,


Whirlpool
’s
senior vice president of global strategic sourcing, said semiconductors go into nearly all of the company’s appliances, from dishwashers to refrigerators. The more chips the U.S. can make at home, the better it can withstand supply-chain disruptions, Biden said.

What’s Next: The Senate and House have each passed their own versions of the Bipartisan Innovation Act. Biden urged House and Senate lawmakers to reconcile their legislative differences and “get it to my desk as quickly as you can.”

Janet H. Cho

***

Soaring Prices Make Nickel Coins Worth More Than a Dime

The humble nickel is worth more than a dime, after the price of the metal that makes up 25% of the coin rocketed to $100,000 a metric ton on the London Metal Exchange earlier this week—amid fears of a shortage from Russia—before trading was stopped.

At $100,000 a ton, a nickel is worth about 16 cents in “melt” value, Barron’s estimates. Each 5-gram coin has 12.5 cents worth of nickel and 3.75 cents of copper, which traded at about $10,000 a metric ton on the LME.

The LME doesn’t expect to restart nickel trading “earlier than” Friday after suspending trading during Tuesday’s session and canceling all trades when the metal briefly topped $100,000 a ton. Russia produces 17% of the world’s high-grade nickel supply.

China’s Tsingshan Holding Group, the biggest producer of a metal used in stainless steel and electric-vehicle batteries, was sitting on $8 billion in trading losses, The Wall Street Journal reported. It said it had secured enough metal to settle all its loss-making positions.

The U.S. Mint said in its annual report that per-unit costs to produce pennies and nickels were higher than face value for the 16th straight fiscal year. It delivered nearly 15 billion coins to the Federal Reserve last year and recorded about $1 billion in revenue.

What’s Next: The LME said it would open the market cautiously with a shortened trading day and limits on moves in nickel prices in either direction, the Journal reported. It has asked companies with substantial positions on the long and short sides to pair them, which would reduce the risk of another short squeeze.

Janet H. Cho and Andrew Bary

***

Rivian Automotive Reports Earnings Today

Electric-truck start-up


Rivian Automotive

will report fourth-quarter earnings Thursday. Trading in the stock following the report should be wild and investors better buckle up.

Wall Street is looking for a loss of about $2 a share in the quarter from $64 million in sales. Sales and earnings, however, don’t matter all that much right now. Rivian just started shipping vehicles.

Investors and analysts will be more interested in the production ramp-up at the company’s facility in Illinois and any guidance for first-quarter and full-year deliveries.

Early in March, the stock fell sharply after the company tried to raise prices for its vehicles on existing reservations. The company reversed its decision a day or two later.

What’s Next: The pricing decision, and cost inflation, should come up on management’s conference call, along with delivery guidance. That event begins at 5 p.m. Eastern time.

Al Root

***

I paid alimony to my ex-spouse last year. How will this affect my taxes?

In divorce, one spouse or ex-spouse may become legally obligated to make payments to the other party. Because these payments are often substantial, being able to deduct them, or not, can be a significant tax issue. Before the 2017 Tax Cuts and Jobs Act, payments that met the tax-law definition of alimony could always be deducted by the payer for federal income tax purposes. And recipients of alimony payments always had to report the payments as taxable income.

This old-law treatment continues for alimony payments made under pre-2019 divorce agreements. But for payments made under post-2018 agreements, it’s a much different story.

Read more here.

Bill Bischoff

***

—Newsletter edited by Liz Moyer, Camilla Imperiali, Rupert Steiner, Joe Woelfel

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