The Weekly Scan May 23, 2022

Welcome to the Weekly Scan. Here’s what we’re following for the week of May 23, 2022.

Missing the Target. Earnings reports from big retailers including Walmart and Target showed that supply-chain issues are cutting into profits.Target reported that its profits fell 52% in the first quarter of 2022, and the company’s share price decreased 25% in response. Walmart’s first-quarter earnings also failed to meet expectations, with earnings per share totaling $1.30 per share, versus the expected $1.48. Walmart said that while customers are spending more due to inflation, the number of items they’re purchasing is falling. Both Target and Walmart’s share price had their worst performance since 1987. Stocks slid in response to the reports. 

• The takeaway: The disappointing earnings reports had a wider effect on the market. The Dow Jones Industrial Average (DJIA) had its worst day since 2020, dropping more than 1,100 points on May 18, 2022. The S&P 500, meanwhile, had its worst day since June 2020, experiencing a 4% drop. The broad market index fell more than 18% below its record closing level, nearing a bear market, which would consist of a 20% or more drop. That last bear market happened in 2020, at the start of the pandemic.

CNBC

Formula for success. In response to a national shortage of baby formula, President Biden launched Operation Fly Formula, invoking the Defense Protection Act to ramp up production and ship more formula into the U.S. from overseas. The Defense Protection Act is a Korean-war era law that allows the president to mandate that companies act in defense of the U.S. Operation Fly Formula will include the use of Defense Department aircrafts to import formula. The Food and Drug Administration (FDA) will also make it easier to approve shipments of formula to the U.S. The House of Representatives also voted to allocate $28 billion in emergency funding to the FDA to address the shortage. 

• The takeaway: The formula shortage has put pressure on parents trying to feed their infants. It has also sparked an investigation of Abbott Nutrition, one of the largest formula producers in the country, which was forced to recall several of its formula brands earlier this year over contamination concerns. The shutdown of one of its largest factories in Michigan, closed as authorities investigated causes of bacterial contamination, has factored into the shortage. The commissioner of the FDA, Robert M.Califf, and senior officials from Abbott are in the process of testifying before Congress. Abbott officials are reportedly being questioned about how the company pursued stock buybacks rather than upgrading outdated facilities.

New York Times

A Spirited debate. JetBlue launched ahostile takeover bid for the low-cost air carrier Spirit, offering shareholders $30 per share, weeks after Spirit chose a merger deal with Frontier. Spirit told shareholders not to take action on the offer from JetBlue. JetBlue had previously made an offer to purchase Spirit for $33, which Spirit rejected, saying that the deal would likely meet regulatory hurdles, since JetBlue is the sixth-largest airline in the country. But JetBlue is arguing that a deal with Frontier would also be met with resistance from regulators. Spirit reportedly plans to deliver a decision regarding JetBlue’s latest offer within 10 business days. 

• The takeaway: The three airlines are fighting over a position that would allow them to better compete with the four biggest airlines in the U.S.: Delta Air Lines, American Airlines, United Airlines, and Southwest Airlines. Those four airlines account for 80% of the market. Spirit has so far maintained that Frontier would be the better choice for a merger over JetBlue. Frontier’s offer, in cash and stock, is currently worth $19.48 per share of Spirit. Robin Hayes, JetBlue’s CEO, has argued that Spirit’s allegiances lie with Frontier due to ties between Spirit’s directors and Frontier’s chairman Bill Franke. 

Reuters

Mr. Roboto. In the ongoing saga of Elon Musk’s attempt to acquire Twitter, the Tesla CEO recently tweeted that his acquisition plans won’t move forward unless the social media company discloses how many accounts on the platform are spam bots, or computerized accounts that send junk messages. Musk alleges that Twitter’s CEO Parag Agrawal failed to confirm that less than 5% of Twitter accounts are fake, and that the actual number of fake accounts could be 20%. The Tesla CEO also claimed that his offer to purchase Twitter was based on the accuracy of the company’s filing with the Securities and Exchange Commission (SEC). Agrawal maintains that eliminating spam accounts is a priority for Twitter, and that the company suspends more than half a million Twitter accounts every day. 

• The takeaway: Musk’s accusation could throw the deal between Musk and Twitter off course. Twitter’s board of directors has accepted an offer from Musk to purchase the company for $44 billion in cash, or $54.20 per share, which was roughly 38% higher than Twitter’s closing share price on April 1, 2022. Musk is throwing doubt on the deal as stocks, particularly in the tech sector, fall. 

Wall Street Journal

Other stories we’re following:

Spaced out. Congress held its first hearing in fifty years on unidentified flying objects (UFOs), known as “unidentified aerial phenomena,” or UAPs, by federal officials. The Pentagon’s database now contains 400 reports of UAPs, up from 143 less than one year ago.

Four more. Jerome Powell, the chairman of the Federal Reserve (the Fed), was confirmed for another four-year term last week. Initially appointed by President Trump in 2017, Powell  has acknowledged the difficulty of the Fed’s most pressing task, fighting inflation. 

 Here’s what we covered last week in the Scan: 

• Household debt in the U.S. totaled a record $15.84 trillion in the first quarter of 2022.
• Parents across the U.S. are facing a critical baby formula shortage.
• Elon Musk announced that if his acquisition of Twitter is approved, he would reinstate former President Donald Trump’s account on the platform.
• Uber CEO Dara Khosrowshahi announced that the rideshare company will now treat hiring as a “privilege” and cut spending.

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