ArkMalibu Update: Assessing the Impact of COVID-19

Please read on for a brief summary of the M&A market, the economic outlook, and reasons to be optimistic. It has been six weeks since our last market update.

Reasons for Optimism in M&A and Capital Markets

  • 193 deals closed in the U.S. & Canada over the past 7 days (last week 363 deals closed, the highest rolling 7-day deal count since covid)
  • Federal Reserve expected to maintain monetary policy stance, keeping interest rates low until at least 2023
  • October unemployment rate and jobs update:
    • Unemployment rate dropped to 6.9% from 7.9%
    • Employers added 638,000 jobs last month, the sixth straight monthly gain
    • Job market has now recovered 12.1 million of the 22 million jobs lost in March and April

Stock Market Update

  • Week-to-date through Thursday, the S&P rose nearly +1%, adding to its current +9% gain year-to-date
  • The Nasdaq Composite recorded a -2% loss week-to-date through Thursday. Year-to-date as of 11/12/2020, performance remains strong at +30%
  • Promising clinical data from Pfizer and BioNTech propelled the stock markets
    • Shares in live entertainment, movie theatres, airlines, cruise lines, restraint chains , travel, and leisure stocks rallied sharply on the news as these companies are most adversely affected by social distancing during the pandemic
      • Live Nation (LYV: +15%), AMC (AMC: +60%), Carnival Cruise Lines (CCL: +39%), Southwest Airlines (LUV: +9.7%), Darden Restaurants (DRI: +18%), Hilton Worldwide Holdings (HLT: +12%)
    • On the other hand, companies that had their demand curves pulled forward due to the virus saw a significant repricing in their valuations
      • Video conferencing, interactive exercising equipment, online streaming, work collaboration, virtual health, and disinfectant companies declined over belief of currently elevated demand returning to more normal levels
        • Zoom (ZM: -15%), Peloton (PTON: -20%), Netflix (NFLX: -9%), Slack (WORK: -2%), Teladoc (TDOC: -8%), Clorox (CLX: -8%)

Bond Market Update

  • Bond markets also digested potential vaccine news development with investors shifting to a “risk on” mindset
    • Increased risk tolerance caused treasury yields to rise Monday; 2-year and 10-year yields are sitting at 17bps and 90bps, respectively
  • Municipal bond market saw record new issuances in October, at more than $70 billion
    • Month-to-date new issue supply in November is muted due to the election, but expected to pick back up in coming weeks
    • Investor sentiment is bullish in high yield municipal market, with increased prospects for an infrastructure package and possible stimulus spending
  • Investment grade corporate bonds posted their largest weekly gain since before Memorial Day
    • Spreads narrowed 8bps to levels last seen in late February

Good News We’ve Been Reading

Economic Recovery Continues Across Globe

  • United States
    • Johnson Redbook’s weekly measure of retail sales accelerates, exceeding year-ago levels for seventh straight week
    • Indeed’s index of job postings is now just 13% below 2019 levels
    • Shift work across sample of firms and industries surveyed by time management firm UKG rose 1.3% last week
    • Third quarter durable goods consumption was up 13% YoY, the highest quarterly increase since 1986
    • Manufacturing PMI for the U.S. in October hit 53.4 and Service PMI hit 56.9, the highest in nearly 2 years
    • Housing market still remains strong, with several indicators above February levels as record-low mortgage rates support demand
      • Single-family housing starts remain above pre-covid levels, and existing home sales continue to run at highest pace since 2006
  • Around the Globe
    • Markit’s global services PMI hit 52.9 in October, the highest in 19 months
    • Markit’s global manufacturing PMI hit 53.0 in October, a 29-month high and an indication of moderate growth in activity
      • With exception of Japan, every major industrial nation had a PMI over 50 (Japan’s PMI still saw improvement from September to October)
      • Includes Canada at 55.5, Eurozone at 54.8 (27-month high), Germany at 58.2 (21-month high), France at 51.3, Italy at 53.8 (31-month high), Spain at 52.5
      • India hit 58.9, the highest in more than a decade, and includes output up at the fastest pace in 12 years, export orders best in six years
    • China: New trade strategy seeks to build on export boom amidst lockdowns in West
    • France: “France Relance” economic stimulus plan announces goal to rebuild the France of 2030, focusing on green sustainable economy, growing businesses & remaining competitive, and ensuring solidarity between generations and regions of French citizens
    • Italy: economy rebounded in third quarter with growth of 16.1%; determining whether to utilize EU’s recovery fund for reducing carbon dioxide emissions or expanding gas infrastructure
    • Spain: manufacturers report fourth consecutive month of increasing production, while growth reaches highest levels since July
    • Japan: economy in third quarter saw its highest expansion in 40 years, growing at an annualized rate of 18.3%
    • South Korea: economy grew 1.9% from June to September, marking its fastest economic expansion since 2010
      • Average daily exports rebounded to positive for first month since January, and recorded highest performance in 13 months
    • Thailand: Tourism Authority announces more relaxed regime as Royal Thai Embassies in western countries begin to allow tourists from the U.S., U.K., and Europe to apply for tourists visas provided conditions are met
    • India: RBI suggests Indian economy may register positive growth by year-end and break out of contraction

Vaccine Development Update

  • Pfizer announces initial Phase 3 clinical trial results show the vaccine is 90% effective in preventing the virus among volunteers who had no evidence of prior infection
    • By year end, Pfizer will have manufactured enough doses to immunize 15 to 20 million people
  • To date, there are 155 vaccines in the pre-clinical trial stage, 39 vaccines in small-scale safety trials (Phase 1), 18 vaccines in expanded safety trials (Phase 2), and 11 vaccines in large-scale efficacy trials (Phase 3)
  • Novavax announces $1.6 billion Operation Warp Speed contract, as well as FDA Fast Track Designation, targeting Phase 3 clinical trials in the U.S. and Mexico by end of November
  • Johnson & Johnson resumes clinical trials in Europe after temporary pause, including Phase 2a studies in Germany, Netherlands, and Spain, and Phase 1/2a studies in Belgium
  • AstraZeneca and Oxford’s co-development undergoes production at CSL in Australia, manufacturing 30 million doses

Innovations Bloom, Habits Change as Society Adjusts to COVID-19

  • U.S.-based Minnow develops insulated locking pods for food delivery to large buildings with many delivery requests
  • U.S.-based Caper develops plug-and-play countertop designed for cashier-less checkouts at mini-marts
  • U.K.-based COID develops transparent modular living systems that optimize the quarantine experience with functional multi-use pods
  • Sweden’s Blenkinge Institute of Technology partners with Stanford University to remanufacture PPE equipment on site & save on waste, transportation, and material costs
  • India’s Turtle Shell Technologies develops contactless health monitoring system to track covid symptoms while patients are sleeping

Positive Encouragement

  • “No matter what your history has been, your destiny is what you create today. What are you going to create?” ―Steve Maraboli
  • “Do not wait for leaders; do it alone, person to person. Be faithful in small things, because it is in them that your strength lies.” — Mother Teresa
  • “Vitality shows in not only the ability to persist, but the ability to start over.” — Scott Fitzgerald

ArkMalibu is happy to answer any questions you may have and to offer guidance during this challenging time. Please visit our website (https://www.arkmalibu.com) for more information.

Until our next update, we send best wishes to you and yours for safety and health.

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