Demands by U.S. activist investors can send a target company’s stock surging, and new data from investment bank Lazard show that these corporate nudges generate considerable market index-beating gains in the days after demands are announced.
But the gains are not always long-lasting, according to a report by Lazard.
“Activism drives median share price outperformance of 200 basis points in the five days following campaign launches,” Lazard wrote in its annual review of shareholder activism, which was released to clients on Wednesday.
More seasoned activists that have launched campaigns for more than a decade saw up to 700 basis points of five-day market-beating stock pops, the report said.
“The market learning that an activist is launching a campaign, regardless of who the activist is or what specific demands are being contemplated, is enough to drive short-term stock price outperformance,” said Christopher Couvelier, managing director and head of European Shareholder Advisory at Lazard.
But data also show that all activists are not created equal and that the share prices of some target companies sink after an initial pop.
The report did not identify any activists or their target companies, but said some target companies’ stock prices have outperformed the market by 4,000 basis points in the days after demands became public.
Global campaigns hit a new high last year and the number of investors relying on the strategy also grew, Lazard data show.
As activist investors pushed for improvements, they often asked for better allocation of capital, streamlined operations and sometimes the sale of the company. Refreshing senior management and the board was also a popular request.
Calls to fire a chief executive officer resonated with other investors who proceeded to buy the stock. The campaigns that included a “demand for CEO change outperformed all other campaigns with median 5-day market outperformance of 3.2% compared with 2.3%” for campaigns that didn’t include such a demand, the report said.
In addition, 14% of targeted companies saw their chief executives leave within one year of an activist’s making demands compared with the broader market turnover rate of 9%, the report said.
While there is often a strong stock price pop following the launch of an activist campaign, the stock price does not necessarily retain the gains, the Lazard data show.
Long-term results reflect a wider dispersion of relative performance, with many targeted companies underperforming their market benchmark, the report said.
“While targets of certain more prolific activists do tend to see sustained outperformance, that is not true across the board and ultimately ends up depending heavily on the idiosyncratic facts and circumstances of the situation,” Couvelier said.
“If we’ve learned anything over the years, it’s that Trump is unpredictable. He loves shaking up markets, but the final outcomes are often less dramatic than his initial announcements,” ING analysts led by Chris Turner said in a note.
“However, officials and companies shouldn’t get too comfortable. We will only know what’s truly happening once it’s done.”
Eight out of the 11 S&P 500 sectors advanced with tech stocks leading gains, up 2%.
Chipmakers got a boost from Microsoft’s plan to invest $80 billion to develop artificial-intelligence-enabled data centers, as well as Foxconn’s forecast-beating fourth-quarter revenue.
Nvidia gained 4.5%, Advanced Micro Devices added 3.7% and Micron Technology climbed 11.6%. The Philadelphia SE Semiconductor index jumped 3.7% to hit a two-month high.
U.S. stocks rebounded sharply on Friday after a string of losses in December and the first few sessions of the new year, when concerns about high valuations, rising Treasury yields and thin liquidity saw traders pull back after a strong 2024 run.
In a week packed with economic data and speeches from U.S. Federal Reserve officials, investors will look for clues on the pace of monetary policy easing this year. Later in the week, the focus will be on a key monthly payrolls report.
“The start of 2025 was never going to be straightforward considering the torrent of bond supply and policy announcements from the incoming U.S. administration,” Societe Generale strategist Kenneth Broux said.
“Conditions are building for a tantrum in bonds and an overshoot in yields. We’re looking at 5% in 10s,” he added, referring to 10-year yields.
The S&P 500, which rallied post Trump’s win, has started to falter.
Other governments are busy repairing their own finances and shoring up their economies, while ramping up bond sales.
Long-dated yields, which tend to be less susceptible to short-term swings in expectations for monetary policy, have hit multi-year highs globally, partly because of the tidal wave of new bonds this year.
Thirty-year Treasury bond yields have risen 60 basis points in a month - the largest such increase since October 2023. They are now perilously close to 5%, a level rarely seen in the past two decades.
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