|Dow||111.61 to 17,055.42|
|S&P 500||+9.53 to 1,977.10|
|Nasdaq||+24.93 to 4440.42|
|10-YR Yield||+.029 to 2.549%|
|Gold||-$28.90 to $1,308.50|
|Crude Oil||+$.29 to $101.12|
Throughout the early and middle stages of the stock market’s post-2009 rally, one thing was consistently M.I.A.
Buying power. Real, authentic, robust buying from corporations and individuals. Executives and average Americans simply didn’t want to commit to buying up companies, stocks or equity funds, so they kept most of their money stashed in cash or low-yielding bonds.
But now that’s changing … in a big way! Buyers are dog-piling into stocks, snapping up competitors, and otherwise validating the rally by throwing their hard-earned dollars at it.
Just get a load of all these transactions we learned about in the past 24 hours:
AbbVie (ABBV, Weiss Ratings: B) jacked up its offer for Shire PLC (SHPG, Weiss Ratings: B-) to a whopping 31.4 billion pounds, or approximately $54 billion. The deal is just the latest one prompted, in part, by tax considerations. U.S. companies are snapping up foreign competitors and assets to slash their U.S. tax bills.
Elsewhere in the pharmaceutical industry, Mylan (MYL, Weiss Ratings: B) said it would buy Abbott Laboratories’ (ABT, Weiss Ratings: C) overseas generic drug business for $5.3 billion. The deal will give Mylan some 100 drugs sold in countries as far afield as Japan, New Zealand, and Europe. Those products have combined annual sales of about $2 billion.
A major reason for the move? You guessed it … taxes! Mylan is going to domicile in the Netherlands after closing on the deal, slashing its tax bill to around 20 percent.
Energy companies are getting into the buying mood, too! Whiting Petroleum (WLL, Weiss Ratings: A-) said it would acquire Kodiak Oil & Gas (KOG, Weiss Ratings: A-) for $6 billion in stock and debt. The deal will boost production in the booming North Dakota and Montana regions to 107,000 barrels per day.
Heck, even chocolate companies are getting in on the action. Swiss candy maker Chocoladefabriken Lindt & Spruengli said it would buy the U.S. company Russell Stover for a price reported to be around $1.4 billion. Russell Stover has annual sales of about $500 million.
|Inflows of investor cash could be the thing that drives markets forward despite the inevitable rise in interest rates.|
Meanwhile, new figures from Bloomberg and the Investment Company Institute show that investors have poured $100 billion into stock mutual funds and Exchange Traded Funds in the past year.
That’s a whopping 10 times the amount they invested in equity funds in the year prior to that. And back in 2012, they actually withdrew $300 billion from equity funds, despite the fact the stock market bottomed three years earlier.
Bottom line: Neither corporate nor individual investors trusted and bought into this market for a long time. But that is clearly changing.
So what does this trend mean for the future? Well, there are two main schools of thought:
The pessimistic interpretation is that individuals are often “late to the party.” Many make the mistake of buying tons of stocks at market peaks, not early on in rallies. If that pattern holds, it means the post-2009 bull market could be on its last legs.
“Neither corporate nor individual investors trusted and bought into this market for a long time. But that is clearly changing.”
The optimistic interpretation is that all this new buying power will drive shares even higher. After all, if the first phase of the rally was driven by cheap Fed money … and that’s starting to dry up due to the death of QE and the eventual raising of interest rates … something else has to step in to fill the breach. New investor inflows would be just the thing, giving the bull market fresh momentum.
So where do you stand on this debate? Do you think the pessimists are right, and that it’s time to batten down the hatches? Or do you think this bull run will get fresh legs from all those investor dollars?
Also, what are you doing with your money? Putting more into stocks over other assets (like bonds, gold, or real estate)? Or selling stocks and raising cash? Let me know at the Money and Markets comments section here.
|OUR READERS SPEAK|
My last piece on homeownership sparked quite a bit of discussion on the website. You generally saw strength in your local housing markets. You also said that most Americans fundamentally do still want to own rather than rent. But you were more widely split on whether the good times would last.
Reader Arve said: “We know several Millennial-age people that took advantage of the fire-sale housing prices during the late Bush years meltdown. Followed by no-interest, long-term financing, they’re happy as kids that hit the lottery. History might show that those that bought at the bottom made the best investment of their lifetimes.”
And Reader Angel said: “My family still believes in homeownership. It is difficult for me to understand why anyone would think that paying for someone else’s property is preferable to paying for your own.
Even if one ends up losing the property, at least one has the chance of being able to build up some equity, and if unable to continue to make payments, at least has a chance to possibly be able to regain some of the investment.”
Reader Ben E. added his two cents from California, saying: “I am a homeowner in an area (Palo Alto, CA) that has seen explosive appreciation due mainly to Chinese buyers. This was predicted at a real estate seminar I attended a couple of years ago. It’s bizarre – I live in a $1.5 million, 1,200 square foot tract house on a slab on a 6,000 square foot lot.”
But Reader Jean warned that the future will likely look less rosy than the recent past. The comments: “Thanks to the Fed’s inflationary policies of printing $$ out of nothing, all asset prices are inflated, including housing, and investment returns are likewise at an all-time low. There is too much debt in the system along with falling demographic growth. All of this will eventually correct to match the diluted disposable income of Americans of all ages.”
Please do continue to share your thoughts on housing and other related topics. You can do so by clicking here.
|OTHER DEVELOPMENTS OF THE DAY|
It’s official. Citigroup (C, Weiss Ratings: B+) is shelling out $7 billion in penalties and mortgage relief as part of a deal with the Justice Department. The bank was under fire for the packaging and sale of lousy mortgage securities back in the housing bubble days.
The stock came out of the gate strong anyway though. The reason? Adjusted earnings per share of $1.24 topped the average estimate of $1.05. Second-quarter adjusted revenue also came in above estimates at $19.4 billion.
Still no let up in the Israeli-Hamas conflict. Rocket attacks from Gaza are continuing, with at least one unmanned drone intercepted and shot down by Israel. Some 169 residents of Gaza have died, with no casualties on the Israeli side other than injuries, thanks in part to the performance of the country’s Iron Dome missile defense system.
The long, slow meltdown of Atlantic City’s casino gambling business is continuing. Trump Plaza is set to close in mid-September, following the Showboat’s shuttering in August. The cause? The expansion of gambling in several mid-Atlantic and Northeast states.
Goooaalllll!! Germany won the World Cup final 1-0 yesterday, putting a big smile on my face. Now I just need to figure out what to do with all the leftover sausages, sauerkraut, and other food we have from our German-themed, Cup-watching party. I think I know what’s going to be for lunch tomorrow … and the next day … and the next! Haha!
Reminder: You can let me know what you think by putting your comments here.
Until next time,