This turbulent environment has caused a chill in deal closing following a record year for M&A and IPOs.
Refinitiv data released on Friday shows that the number of global M&A deals fell 19% in the first quarter compared to 2021, falling from 14,700 to nearly 12,000.
IPOs have also come to a halt, although there is a long list of companies that have expressed interest in going public.
Only 321 transactions were registered in the global IPO market, which raised $54.4 billion in the first quarter, according to the consulting company EY. The amount of funds raised fell by 51% compared to last year. In the Americas, revenue fell 95% to just $2.4 billion.
The year started off strong. January was the strongest opening month for global IPOs in 21 years, according to EY. In early February, Chinese video app Kuaishou raised $5.3 billion with its debut in Hong Kong.
“Increased market volatility and uncertainty related to geopolitical crises, oil prices, inflation and supply chain disruption could negatively impact companies’ earnings and growth trajectory,” Rachel Gerring, EY Americas IPO leader, told me. “As a result, we are seeing a pause while companies navigate these conditions.”
Gerring believes that the suspension of transactions is likely to be temporary, and the mood may change if Wall Street becomes more confident in the future.
“When the geopolitical crisis stabilizes, we expect market volatility to decrease,” Gerring said. “As valuations improve, some of the larger and much anticipated deals will enter the market. If these transactions are priced and traded well, both issuers and investors will gain confidence and increase risk appetite.”
“It is possible that this moment may come by the end of the second quarter,” she added.
In the meantime, mergers should be facilitated by a huge number of specialized takeover companies, or SPACs, which do not have enough time to search for takeover targets. These blank-check firms that raise money from investors and then go hunting for deals typically have two years to implement their strategy.
“Merger activity is expected to pick up during the year as more than a quarter of the more than 600 active SPACs expire,” Gerring said.
The next phase of US job recovery begins
The US labor market has come a long way since the worst days of the pandemic, when more than 20 million Americans were out of work.
But the economy continues to rapidly add new roles, easing fears that high inflation and the withdrawal of support from the Federal Reserve could trigger a recession.
Latest: March vacancy numbers arrive on Friday. Economists polled by Refinitiv expect to know that 490,000 job openings were added last month, my CNN Business colleague Anneken Tappe says.
If this forecast is confirmed, the country will restore more than 90% of all jobs lost during the pandemic. It will also raise the unemployment rate to 3.7%, a new pandemic-era low.
Monthly job gains over the past 12 months have averaged over half a million people, a staggering pace compared to the pre-coronavirus era. In 2019, the monthly average was 164,000 jobs.
Growth is expected to decline as the recovery continues. At the same time, the data is good news in a sea of uncertainty.
It also gives the Fed more room to maneuver as it starts raising interest rates.
“Right now, a very strong labor market is serving as a front for the Fed to become more hawkish, dismissing short-term upside risks as low,” Citi economists Veronica Clark and Andrew Hollenhorst said in a note to clients this week.
Corporate profit last year was the highest ever
Inflation soared in 2021, and companies struggled to get the parts and workers they needed to keep up with rising post-lockdown demand.
But according to data released this week, US companies were still making more money than ever before.
But investors are nervous that the company’s winning streak could be broken as soaring energy prices drive up costs and encourage consumers to become more conservative.
UBS Global Wealth Management said it now expects “only modest upside potential for the stock” this year, citing earnings uncertainty as a key factor. Mark Häfele, the division’s chief investment officer, said he now expects global profits to grow by 8% this year instead of 10%.
In 2021, S&P 500 companies reported nearly 48% earnings growth in 2021, according to FactSet.
The US employment report for March arrives at 8:30 am ET.
Next week: Russia faces a major bond payment. Will Moscow fulfill its obligations in the face of international pressure?