A magnificent Friday to you as stocks retreat in cautious end to turbulent month. 

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In brief (TL:DR) 

• U.S. stocks were mixed on Thursday with the Dow Jones Industrial Average (+0.61) up, while the S&P 500 (-0.61%) and the Nasdaq Composite (-1.63%) were down. 

• Asian stocks slid Friday as disappointing results from tech giants soured sentiment and marred a tentative recovery in equities. 

• Benchmark U.S. 10-year Treasury yields advanced six basis points to 3.98% (yields rise when bond prices fall). 

• The dollar edged higher.

• Oil headed for a weekly gain with December 2022 contracts for WTI Crude Oil (Nymex) (-1.23%) at US$87.98, supported by tightness in petroleum product markets, robust US exports, and a weakening dollar.

• Gold fell with December 2022 contracts for Gold (Comex) (-0.71%) at US$1,653.70.

• Bitcoin (-2.51) fell to US$20,198. 

In today's issue...

1. Elon Musk Buys Twitter

2. The U.S. Economy Shows No Real Signs of Weakness

3. Crypto ETFs Are Worst Performing Amongst ETFs 

Market Overview

The combination of weaker earnings and higher interest rates is making technology stocks look increasingly unappealing to investors.

Economists still expect the Fed to hike by three-quarters of a percentage point for the fourth time in a row. But with recent data highlighting the effects of sharp rate hikes on the economy, investors expect the FOMC to slow the pace of tightening after November’s meeting.  

Chinese assets also remained in focus, with foreign investors dumping a record amount of mainland China stocks this week and sending Hong Kong equities to a 13-year low. 

Asian markets were lower on Friday with Tokyo's Nikkei 225 (-0.88%), Sydney’s ASX 200 (-0.87%), Seoul's Kospi Index (-0.89%) and Hong Kong's Hang Seng Index (-3.66%) all in the red.

1. Elon Musk Buys Twitter

• Elon Musk has finally completed his US$44 billion acquisition of Twitter, putting the world’s richest man in charge of the struggling social network after six months of public and legal wrangling. 

• Musk has long been deft at managing corporations, keeping companies like SpaceX private, and only listing electric vehicle maker Tesla purely out of necessity. 

Capping off a corporate drama that wouldn’t look out of place in a soap opera, Elon Musk has finally completed his US$44 billion acquisition of Twitter, putting the world’s richest man in charge of the struggling social network after six months of public and legal wrangling. 

Among Musk’s first moves after taking over has been a purge of leadership, with Twitter’s CEO Parag Agrawal, and CFO Ned Segal among the early departures. 

Musk has also fired Vijaya Gadde, Twitter’s head of legal, policy and safety, as well as general counsel Sean Edgett, paving the way for the eccentric billionaire to create his own imprimatur at the social networking company. 

Twitter shares will be suspended from trading on the New York Stock Exchange on Friday, according to the exchange’s website and shareholders will be paid US$54.20 per share, with Twitter set to operate as a private company. 

Musk has long been deft at managing corporations, keeping companies like SpaceX private, and only listing electric vehicle maker Tesla purely out of necessity. 

In numerous in-house communication to staff, Musk has often explained the need to keep SpaceX private and why Tesla’s IPO was also a necessity, which has frustrated some employees, especially those looking to cash out their shares, but found support in others. 

With Twitter set to go private, Musk has the opportunity to take the company that popularized text-based updates in the early days of social media and recast it according to his own vision of what social media should look like. 

Musk’s ownership will bring immediate disruption to Twitter’s operations and the billionaire has promised to cut jobs and costs at Twitter, while boosting product innovation in an attempt to build a “super app” that incorporates payments, commerce and messaging.

There has already been speculation that Twitter will incorporate cryptocurrency payments into its new app.  

Musk has said he wants to ensure “free speech” on the social network, which is likely to mean looser content moderation standards, and plans to restore some high-profile accounts that were kicked off Twitter for breaking rules, including former U.S. President Donald Trump’s.

The deal, once coveted by bankers, could turn into a nightmare with some of the biggest names in the leveraged finance industry facing steep losses as interest rates have soared from the time the deal was first broached to the current acquisition. 

A group of banks led by Morgan Stanley, including Bank of America and Barclays, committed US$13 billion in financing for the deal in April when debt markets were still relatively stable and interest rates were rising, but had not been hiked at the current clip. 

However, market volatility has left banks with few options other than to fund it themselves and keep it on their balance sheets, nursing those losses until credit conditions eventually become more favorable. 

Committing to coming up with US$33 billion of equity in total, Musk has said he has raised at least US$7 billion for his bid from a roster of investors including Oracle co-founder Larry Ellison, cryptocurrency exchange Binance, and asset management groups Fidelity, Brookfield and Sequoia Capital.

2. The U.S. Economy Shows No Real Signs of Weakness

• U.S. stocks and Treasury bond yields dipped on Thursday, reflecting growing concern that the U.S. Federal Reserve could be emboldened to continue raising interest rates to combat soaring inflation. 

• Concerns have intensified that the Fed and its international peers will turn the screws on monetary policy into a protracted slowdown and possibly a recession, and the latest round of positive U.S. GDP data is not helping matters. 

After data showed the world’s largest economy grew in the third quarter, having contracted for the first six months of the year, U.S. stocks and Treasury bond yields dipped on Thursday, reflecting growing concern that the U.S. Federal Reserve could be emboldened to continue raising interest rates to combat soaring inflation. 

The S&P 500 fell 0.6%, erasing earlier gains, while the technology-heavy Nasdaq Composite fell 1.6%. 

Meanwhile, the two-year Treasury yield reached its lowest level in two weeks, down 0.1% to 4.3%, and the 10- and 30-year Treasury yields fell to their lowest levels in more than a week, as the strength of the economy increased demand for Treasuries (yields fall when bond prices rise). 

Although U.S. GDP increased 2.6% on an annualised basis between July and September, compared with economists’ expectations of a rise of 2.4%, the headline figure masked weaker domestic consumer demand, which suggests a slowing economy that has yet to be reflected in the data.

After it reported another quarter of declining revenues, shares in Facebook owner Meta fell a whopping 24.6% on Thursday while Amazon reported weaker-than-forecast sales, causing its shares to tumble some 18% in after-hours trading.

Having been raising interest rates aggressively this year in an attempt to curb inflation, the Fed is expected to continue a fourth consecutive supersized rate hike of 0.75% at meeting next week.

Concerns have intensified that the Fed and its international peers will turn the screws on monetary policy into a protracted slowdown and possibly a recession, and the latest round of positive U.S. GDP data is not helping matters. 

3. Crypto ETFs Are Worst Performing Amongst ETFs 

• Morningstar Direct data show that crypto ETFs which were launched in the heady days of 2021 just before prices tumbled, account for five of the worst seven debuts in the history of the ETF industry.

• However, the Morningstar analysis also suggest a terrible first year does not necessarily sound the death knell for a fund and that the crypto sector could bounce back as a lot of those involved in the industry have just regathered themselves for the next bull run. 

Despite the excitement surrounding a slew of crypto-themed ETFs and initial investor flows, collectively, they have performed far worse than all other ETFs. 

Reflecting their volatile nature, cryptocurrency ETFs such as the ProShares Bitcoin Strategy ETF, which holds CME Group’s Bitcoin futures, marked record-breaking flows into an ETF at launch.

But since then, rising interest rates and declining risk appetite have seen flows into crypto ETFs all but dry up. 

Morningstar Direct data show that crypto ETFs which were launched in the heady days of 2021 just before prices tumbled, account for five of the worst seven debuts in the history of the ETF industry, despite being the top performers soon after launch. 

The worst performer was the France-domiciled Melanion BTC Equities Universe Ucits ETF (FR0014002IH8), which invests in crypto-adjacent companies such as Marathon Digital Holdings, Riot Blockchain and MicroStrategy. 

Launched in October 2021, just weeks before global markets peaked, the Melanion offering tumbled 76.9% in the 12 months thereafter.

Across the Atlantic, the ProShares Bitcoin Strategy ETF (BITO), lost a record US$1.2 billion in the 12 months after its eagerly awaited arrival in October 2021, in line with the decline in cryptocurrency prices in 2022. 

The U.S.-listed Global X Blockchain ETF (BKCH), Invesco Alerian Galaxy Crypto Economy ETF (SATO) and the First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT) have all seen falls of 76.7%, 73.7 % and 69.4% respectively in their first year of operation.

However, the Morningstar analysis also suggest a terrible first year does not necessarily sound the death knell for a fund and that the crypto sector could bounce back as a lot of those involved in the industry have just regathered themselves for the next bull run.