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No one wanted to cut deals after Russia invaded Ukraine

London (CNN Business)The US stock market just logged its most tumultuous quarter since the start of the pandemic, as rising inflation and Russia's invasion of Ukraine spooked investors and encouraged companies to think twice about pursuing mergers or Wall Street debuts.
What's happening: The S&P 500 fell almost 5% between January and March. It was the index's worst three-month period since the first quarter of 2020, when it plunged 20%.
This turbulent environment triggered a chill in dealmaking on the heels of a record year for mergers and acquisitions and initial public offerings.
Data from Refinitiv published Friday shows that the number of global M&A deals plummeted 19% in the first quarter compared to 2021, falling from about 14,700 to nearly 12,000.
IPOs also dried up, even though there's a long list of companies that have expressed interest in going public.
The global IPO market registered just 321 deals that raised $54.4 billion in the first quarter, according to consultancy EY. The amount of money raised dropped 51% year-over-year. In the Americas, proceeds fell 95% to just $2.4 billion.
The year had started off strong. January produced the strongest opening month for global IPOs in 21 years by proceeds, EY said. In early February, Chinese video app Kuaishou raised $5.3 billion via its Hong Kong debut.
Mega-deals also grabbed headlines, such as Take-Two Interactive's purchase of Zynga and Microsoft's acquisition of Activision Blizzard (ATVI) in January. But the war in Ukraine quickly changed the picture.
"Increased volatility in the markets and uncertainties surrounding geopolitical crises, oil prices, inflation and supply chain disruption could negatively impact companies' profits and growth trajectory," Rachel Gerring, EY Americas IPO leader, told me. "As a result, we're seeing a pause as companies navigate these conditions."
Gerring thinks the halt in dealmaking is likely to be temporary, and the mood could change if Wall Street becomes more confident about the future.
The CNN Business Fear & Greed Index, which tracks investor sentiment, is back in neutral territory, after producing an "extreme fear" reading one month ago.
"When the geopolitical crises stabilize, we expect market volatility to mitigate," Gerring said. "As valuations improve, some of the larger, more highly anticipated deals will come to market. If these deals price and trade well, both issuers and investors will gain confidence and have an increased appetite for risk."
It's "not out of the question" that this moment could arrive by the end of the second quarter, she added.
Mergers, meanwhile, should get a boost from the sheer number of special-purpose acquisition companies, or SPACs, that are running out of time to find takeover targets. These "blank check" firms, which raise money from investors and then go hunting for deals, typically have two years to execute their strategy.
"Merger activity is expected to pick up as the year progresses since more than a quarter of the 600+ active SPACs will expire," Gerring said.
In the meantime, the rush to create SPACs has evaporated as investors eye a crowded field and regulators take a harder line. The US Securities and Exchange Commission this week unveiled new draft rules aimed at boosting disclosures after the frenzy sparked concern about a lack of oversight.
The next phase of the US jobs recovery has begun
The US jobs market has come a long way since the worst days of the pandemic, when more than 20 million Americans found themselves out of work.
But the economy continues to add new roles at a rapid clip, easing fears that high inflation and a pullback in support from the Federal Reserve could trigger a recession.
The latest: The job numbers for March arrive Friday. Economists polled by Refinitiv expect to learn that 490,000 positions were added last month, my CNN Business colleague Anneken Tappe reports.
If that prediction holds, the nation will have recovered more than 90% of all jobs lost during the pandemic. It would also bring the unemployment rate to 3.7%, a new pandemic-era low.
Monthly job gains have averaged more than half a million over the past 12 months, a staggering pace compared to the pre-coronavirus era. In 2019, the monthly average was 164,000 jobs.
Increases are expected to get smaller as the recovery continues. In the meantime, the data is good news in a sea of uncertainty.
It also gives the Federal Reserve more room to maneuver as it starts raising interest rates.
"Currently, a very strong labor market is providing cover for the Fed to turn more hawkish while dismissing near-term growth risks as low," Citi economists Veronica Clark and Andrew Hollenhorst said in a note to clients this week.

Apr 3, 2022 11:44
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