|Dow||+6.10 to 17,678.70|
|S&P 500||+5.27 to 2,507.09|
|Nasdaq||+13.88 to 4,771.76|
|10-YR Yield||+.011 to 1.828%|
|Gold||-$12.20 to $1,280.40|
|Crude Oil||-$0.52 to $45.07|
Don’t look now … but Merger Monday is back! By my count, a whopping $45 billion in mega-deals hit the tape in just a few hours.
They weren’t confined to just one industry, either. The transactions spanned the industrial, energy, and insurance sectors — proving that Wall Street’s deal-making drive is still in full swing!
That, in turn, could be another positive force supporting stock prices as the year unfolds. So let’s take a look at ’em now …
==> Mega-Merger #1: Rock-Tenn Co. (RKT, Weiss Ratings: A) and MeadWestvaco (MWV, Weiss Ratings: B+). The two companies go toe to toe in the packaging industry, and they’ll be combining in a $16 billion deal.
The goal? Build a company large enough to do battle with International Paper (IP, Weiss Ratings: B). By the way, I’ve liked MWV for a long time, and have recommended it in a number of venues. So if you own it, enjoy the gains!
|Are the recent mega-deals another vote of confidence in energy stocks?|
==> Mega-Merger #2: Energy Transfer Partners LP (ETP, Weiss Ratings: C) and Regency Energy Partners LP (RGP, Weiss Ratings: C+). This energy pipeline deal rings in at $18 billion including debt. It’s the latest move among master limited partnership firms to simplify their ownership structures, and to bulk up even as oil and gas prices hover at multi-year lows.
Is this another vote of confidence in energy stocks? A sign that more investors and insiders are seeing value in the sector after a nasty spill in late-2014? Time will tell. But it certainly makes sense to me!
==> Mega-Merger #3: Axis Capital Holdings (AXS, Weiss Ratings: A-) and PartnerRe (PRE, Weiss Ratings: A). This reinsurance deal is another huge one, clocking in at $11 billion. The two Bermuda-based companies provide reinsurance to insurance companies, helping them manage risk.
After the transaction, the combined firm will rank in the top five in its business. That will help it fight off competition from the likes of Munich Re (MURGY, Weiss Ratings: Not rated) and Berkshire Hathaway (BRK/A, Weiss Ratings: Not rated).
So what’s the big-picture message from all these deals? Well, we saw a 47 percent surge in M&A activity last year, according to Thompson Reuters. The firm counted 40,400 transactions worth $3.5 trillion, making 2014 the strongest year since the previous market peak in 2007.
|“The deal-making surge was one factor behind last year’s market advance.”|
The deal-making surge was one factor behind last year’s market advance, and it’s clear that 2015 is off to a strong start already. Provided companies don’t go way off the deep end … and launch a slew of dumb deals like AOL (AOL, Weiss Ratings: B+)–Time Warner (TWX, Weiss Ratings: A-) or Bank of America (BAC, Weiss Ratings: B)-Countrywide Financial … stocks could have the benefit of that M&A tailwind again this year.
So what’s your take on these multi-billion-dollar deals? Are they a sign of confidence among corporate executives, and therefore a bullish signal for stocks? Or are companies going too far, and being forced to combine because they can’t find anything better to do with their cash hoards? That would obviously be the bearish take.
Also, which sectors look the most likely to you to see a wave of M&A deals? Financials? Energy? Industrials? Weigh in at the Money and Markets website and let your fellow investors know!
|Our Readers Speak|
There are a couple of different topics being discussed these days, and that’s a good thing considering everything that’s going on in the markets.
One thread from the likes of Reader Papa and Reader Holygeezer concerns Federal Reserve policy, and whether and when the Fed will hike interest rates for the first time. Some background is probably in order there.
I predicted several quarters ago — and well in advance of virtually every Wall Street economist or pundit — that the Fed would get out of the QE business. Most experts at the time were predicting the Fed’s first step wouldn’t come until mid-2014. But policymakers started dialing the printing program back in December 2013, then wrapped it up entirely a few months ago.
My view (for some time) has been that a natural, next step would be actual interest rate hikes. The U.S. economic data is much stronger than what we’re getting from other countries, and certainly merits an unwinding of a portion of the extraordinary stimulus we’ve seen.
I was thinking for a while that it could come this month. But the collapse in the price of commodities like oil might push that date out to later in 2015, even as I think the Fed “should” have moved already given what’s happening with GDP, unemployment, and the like. Hope that helps clear up your questions!
As for energy stocks — another topic of conversation — Reader Pete H. thinks bargain-hunting in the sector will be heating up. His take:
“As the oil-related companies that are overextended go belly up, the companies/investor groups with cash will buy them up for pennies on the dollar and make a killing on the back side.”
We already saw that with Talisman Energy (TLM, Weiss Ratings: C-) several weeks ago, and as today’s column shows, we’re seeing more activity in 2015.
Meanwhile, I hope you didn’t miss Reader Brian L.’s “correction” of my quote in last week’s column. Great for a laugh, so let me give him the floor:
“Your quote is incorrect. The correct version is: Give a man a fish and you feed him for a day. Teach a man to fish and he will sit in a boat and drink beer all day.”
Any other thoughts on interest rates? Energy stocks? The markets in general? Then don’t be afraid to share them at the website!
|Other Developments of the Day|
Greek citizens elected the leftist Syriza party and its leader Alexis Tsipras into power over the weekend. That raises the stakes in Europe because Syriza leaders want to renegotiate the terms of the debt bailout deals Greece struck with other euro-zone countries.
In fact, they want to write off tens of billions of dollars in debt entirely rather than just get lower interest rates or a longer period of time to pay the money back. German leaders are staunchly opposed, so one heck of a fight could be in store over the coming few weeks.
If you live in the Northeast Corridor, bundle up! You’re in for one of the worst blizzards in years, according to forecasters. Cities like New York and Boston could see as much as 30 inches of snow and wind gusts to almost hurricane force. I promise I’ll keep my mouth shut about what it looks like out my office window here in South Florida!
The bottom is in for oil … or at least, that’s what the head of the oil cartel OPEC just said. Secretary-General Abdullah al-Badri told Reuters that “Now the prices are around $45-$55 and I think maybe they reached the bottom and will see some rebound very soon.”
Any comments you’d like to add? Then hit up the website and weigh in.
Until next time,