Shares of tech companies and special-purpose acquisition companies soared on Tuesday, rebounding after a series of week-long declines that pushed some popular SPACs down 20% or more in a month.
The Nasdaq Composite rose 3.7% to its biggest advance since November, trimming a recent drop that just a day earlier dragged it more than 10% below the maximum reached in February. Electric car company Tesla Inc.’s shares rebounded 20%, adding more than $ 100 billion to the company’s market value, or almost double the value of Ford Motor Co.
Some popular companies that went public by merging with so-called SPACs in recent years – including online real estate company Opendoor Technologies Inc., space tourism company Virgin Galactic Holdings Inc. and electric car company Lordstown Motors Corp – added 6% or more on Tuesday. All of them remained at a drop of at least 30% in the past month.
Tuesday’s fluctuations highlighted the competitive dynamics unfolding in the financial markets, as the economy recovers from stoppages designed to stem the spread of the coronavirus. For weeks, investors sold SPACs and popular internet companies, turning them into shares in banks and energy producers that they believed would do better as the economy recovered and yields on government bonds increased.
Also called blank check companies, SPACs are front companies listed on a stock exchange for the sole purpose of acquiring a private company to make it public. The private company, usually a startup, then takes SPAC’s place in the stock market. The merger with a SPAC has become a popular way for companies to go public because the process leads to more flexible regulatory requirements and brings huge returns for Wall Street and Silicon Valley investors.