Daily Capital

Weekly Market Digest: Scrutiny on “Blank Check” Companies

Talk of additional coronavirus government stimulus continued this week without any conclusion, while the S&P 500 and DJIA, Gold, and Foreign Stocks declined over the course of the week.

Market focus seems to continually surround the impending election, the United States’ management of the coronavirus, and the pace of overall economic recovery across the globe. This sentiment has been reflected by investors in general and we have seen an increased level of clients who would prefer to ‘wait and see’ before making any immediate changes to their cash holdings or portfolios.

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Weekly Returns

S&P 500: 3298.5 (-0.6%)
FTSE All-World ex-US(VEU): (-3.7%)
US 10 Year Treasury Yield: 0.66% (-6.00%)
Gold: $1,860.45 (-5.0%)
EUR/USD: 1.163 (-1.8%)

Major Events

  • Monday – Supreme Court Justice Ruth Bader Ginsburg died over the weekend. She spent 27 years on the Supreme Court.
  • Monday – Stocks, Gold and Oil declined in value on Monday as investors grappled with a stronger US dollar, potential supply increases within Oil, and a potential lack of further Corona related stimulus packages from the US Federal Government.
  • Tuesday – During Tesla’s Battery Day, CEO Elon Musk laid out a high-level plan to produce a $25,000 electric vehicle to consumers, with a loose 3-year timeline.
  • Wednesday – California Governor Gavin Newsom signed an order to eliminate the sale of new gas-powered passenger vehicles in California by 2035.
  • Wednesday – Johnson & Johnson announced that its Covid – 19 vaccine has entered late stage testing, putting the vaccine on track to be potentially used by early 2021.
  • Thursday – The Commerce Department reported that new home sales in August increased to the highest level seen since 2006.
  • Friday – The Commerce Department reported August was the 4th month in a row in which durable goods orders increased – a good economic sign although for some, expectations were higher.

Our Take: Scrutiny on “Blank Check” Companies

‘Blank check’ companies experienced increased volatility this week as the Securities and Exchange Commission shared added interest in detail around this increasingly popular alternative to a more traditional Initial Public Offering.

‘Blank check,’ is the colloquial term for a Special Purpose Acquisition Company (SPACs). SPACs are formed with the intent to raise capital in the public markets through an Initial Public Offering (IPO), for the specific intent to acquire a company using the funds raised from the IPO.

Electric Car marker Nikola is one such company that underwent a SPAC acquisition.

Interestingly, SPAC investors usually purchase shares of a SPAC during an IPO without knowing exactly what company the SPAC will acquire. During a more typical IPO, investors know exactly what company they are purchasing, with significant due diligence provided to allow for an informed investment decision.

The SEC is interested in looking more closely into the compensation received by SPAC sponsors (the individuals who create the SPAC and ultimately decide which company(s) to acquire). These individuals can come away from this ‘blank check’ process with significant compensation.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Paul Deer, CFP®
Paul is a Certified Financial Planner® and has been with Personal Capital since they first moved to Denver in 2013. With over a decade of industry experience, Paul’s current role as Director of Advisory Service keeps him focused on a team of over 60 Financial Advisors and their clients.

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