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Stocks Plunge Late, But Will SPACs Ever Rise Again?

By Dan Caplinger - May 18, 2021 at 5:17PM

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Tuesday had some wild trading.

On Tuesday, things looked relatively good on Wall Street until just about the last moment. Toward the end of the trading session, though, stock market benchmarks suffered big late-day declines that pulled just about all of them into negative territory. The Dow Jones Industrial Average (^DJI 1.08%) had been down for most of the day, but the S&P 500 (^GSPC 1.47%) and Nasdaq Composite (^IXIC 1.82%) ended up also falling prey to a surge of pessimism near the close.

A lot of popular investments have seen huge rises and falls in 2021, and one of the most notable has been in the special purpose acquisition company universe. SPACs are generally well off their highs, and many investors appear to have lost confidence in them ever bouncing back. Below, we'll look more closely at whether that pessimism is justified -- or whether SPACs may yet rise again.

Letter blocks spelling SPAC surrounded by money.

Image source: Getty Images.

How the market fared on Tuesday

Major stock indexes lost ground again on Tuesday, with late-day losses generally keeping indexes down less than 1% from where they closed the previous day.

Index

Percentage Change

Point Change

Dow

(0.78%)

(267)

S&P 500

(0.85%)

(35)

Nasdaq Composite

(0.56%)

(75)

Data source: Yahoo! Finance.

Some bounces for SPACs

SPACs have gotten crushed in recent months, with even some of the largest players in the industry taking big hits. Yet at least on Tuesday, there were some notable winners in the SPAC universe:

  • Social Capital Hedosophia Holdings V (IPOE) picked up almost 9% on Tuesday. The Chamath Palihapitiya-led shell company is moving forward with plans to merge with lending and financial app provider Social Finance in the near future.
  • Churchill Capital IV (CCIV) gained nearly 6%. The SPAC still expects to complete its merger with premium electric vehicle manufacturer Lucid Motors, and recent updates have shown increased interest in reserving Lucid Air vehicles once production begins.
  • FinServ Acquisition (FSRV) picked up another 10% Tuesday, adding to previous gains as investors have new hope for its planned merger with e-commerce point-of-sale lease-to-own provider Katapult.
  • Pershing Square Tontine Holdings (PSTH) was higher by about 2%. Investors pointed to comments from Pershing Square's Bill Ackman that suggest that an announcement of an acquisition target might be coming in the near future.

A long way to go

It's nice to see some gains for these SPACs. However, it'll take a lot longer for them to come close to matching their former glory. SCHH V traded almost 70% higher than its current level in early February, while Pershing Square had been 33% above its current level even with no merger candidate in sight at all. FinServ nearly hit $20 per share before losing half its value prior to its most recent run-up. And Churchill has been hardest hit of all, with the Lucid merger inspiring a rise to nearly $65 per share compared to its current level below the $20 mark.

Expectations are certainly a lot more reasonable for SPACs, but have they come too far down? In some cases, the answer might be yes. Currently, Social Capital Hedosophia Holdings VI (IPOF 0.15%) trades right at the $10 mark, implying no premium whatsoever for Palihapitiya's future pick. Given that investors were paying $15 per share not too long ago, that SPAC looks like a bargain.

For the rest, though, it's up to investors to decide what prospects future merger candidates have. Successful execution will mean the difference between a full comeback and lingering losses. That uncertainty is a big part of what's holding SPACs back right now.

Dan Caplinger owns shares of Pershing Square Tontine Holdings, Ltd. The Motley Fool owns shares of and recommends Social Capital Hedosophia Holdings Corp. V and Social Capital Hedosophia Holdings Corp. VI. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Social Capital Hedosophia Holdings Corp. V Stock Quote
Social Capital Hedosophia Holdings Corp. V
IPOE
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$33,696.96 (1.08%) $360.39
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,269.04 (1.47%) $61.77
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$13,012.55 (1.82%) $232.69
Pershing Square Tontine Holdings, Ltd. Stock Quote
Pershing Square Tontine Holdings, Ltd.
PSTH
FinServ Acquisition Corp. Stock Quote
FinServ Acquisition Corp.
FSRV
Social Capital Hedosophia Holdings Corp. VI Stock Quote
Social Capital Hedosophia Holdings Corp. VI
IPOF
$9.98 (0.15%) $0.01
Churchill Capital Corp IV Stock Quote
Churchill Capital Corp IV
CCIV

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

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