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Palihapitiya SPACs Get a Stock Market Boost on Clover News

By Dan Caplinger - Apr 8, 2021 at 5:38PM

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Solid gains for the overall market could re-ignite interest in special purpose acquisition companies.

Thursday was a strong day for the stock market, as the S&P 500 (^GSPC 2.02%) once again set a new record high. Investors are increasingly comfortable with the way the economy is reacting as coronavirus vaccinations continue, and big gains for the Nasdaq Composite (^IXIC 0.00%) also helped restore confidence in beaten-down tech stocks. The Dow Jones Industrial Average (^DJI 1.34%) settled for a modest gain.


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Point Change




S&P 500



Nasdaq Composite



Data source: Yahoo! Finance.

Special purpose acquisition companies  took a big hit in the past couple of months when investors cooled to high-growth stock plays. One of the biggest proponents of SPACs is Social Capital founder Chamath Palihapitiya, and several of his investment vehicles fell sharply along with peers from other investment sponsors. On Thursday, though, good news from Clover Health Investments (CLOV 7.72%) helped restore some investors' faith in the SPAC pioneer's other entities.

Letter tiles spelling SPAC surrounded by $1 bills.

Image source: Getty Images.

Good luck for Clover

Clover Health Investments finished the day up more than 20%. The move came relatively late in the day following favorable news from the federal government.

The Center for Medicare and Medicaid Innovation announced that Clover would be one of 53 direct contracting entities that will participate in Medicare and Medicaid's Global and Professional Direct Contracting Model for the annual period that started April 1. That seemed to spur interest in the beaten-down company, which had merged with a Social Capital Hedosophia Holdings SPAC in order to go public earlier this year.

Clover has had to deal with attacks from short-selling investors, some of whom argue that the business doesn't justify the hype that it got when it was going through the SPAC merger process. However, the ferocity of the rebound suggests that there may have been some interest among investors to try to start a short squeeze.

Even with the rise, Clover still trades well below the $10 level at which SPAC shares were initially issued. It'll need to keep climbing above that level for many investors to look favorably on Clover.

Still waiting for a partner

Meanwhile, the news for Clover helped send shares of other Palihapitiya SPACs higher. Social Capital Hedosophia Holdings V (IPOE) is slated to merge with financial upstart SoFi, and its shares were higher by more than 5%. Two SPACs that haven't identified partners, Social Capital Hedosophia Holdings IV (IPOD -0.50%) and Social Capital Hedosophia Holdings VI (IPOF 0.00%), picked up 3% and 4%, respectively.

All three of these SPACs sank significantly during February and March, when the air seemed to come out of what some called a bubble in special purpose acquisition companies. At the time, some investors also blamed Clover's relative underperformance as a factor in their loss of confidence.

A lot of SPAC investors watch the companies that Social Capital Hedosophia Holdings has targeted very closely, and when one does well, the entire universe of Palihapitiya SPACs can follow suit. That's somewhat misleading, because what helps one stock's fundamental business might have zero impact on others. Nevertheless, if you're looking seriously at SPAC investing, it's vital to understand that at least on some days, the Palihapitiya SPACs will often see moves in the same direction.

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Stocks Mentioned

Clover Health Investments, Corp. Stock Quote
Clover Health Investments, Corp.
$2.79 (7.72%) $0.20
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$32,654.59 (1.34%) $431.17
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$4,088.85 (2.02%) $80.84
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$11,662.79 (0.00%) $0.00
Social Capital Hedosophia Holdings Corp. IV Stock Quote
Social Capital Hedosophia Holdings Corp. IV
$9.95 (-0.50%) $0.05
Social Capital Hedosophia Holdings Corp. V Stock Quote
Social Capital Hedosophia Holdings Corp. V
Social Capital Hedosophia Holdings Corp. VI Stock Quote
Social Capital Hedosophia Holdings Corp. VI
$10.02 (0.00%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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