Corporate Dealmaking Surge Lifts US Stocks Amid Low Earnings Expectations

Strategic Insights -

A surge in corporate dealmaking has driven US stocks higher, with key indices posting significant gains amidst a backdrop of low earnings expectations. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite Index saw substantial increases, with major players such as General Electric, Royal Dutch Shell, and FedEx unveiling major transactions. The market's optimism is fueled by the prospect of takeover premiums and a jockeying among companies to identify the next target. Energy and pharmaceuticals sectors, in particular, are witnessing increased activity, with analysts predicting a potential wave of deals comparable to the late 1990s.

Key Takeaways:

  • The surge in corporate dealmaking has lifted US stocks, with the Dow Jones Industrial Average rising 244.41 points (1.66 percent) to 18,057.65.
  • The S&P 500 gained 35.10 (1.70 percent) to 2,102.06, while the Nasdaq Composite Index jumped 109.04 (2.23 percent) to 4,995.98.
  • Mace Blicksilver, director of Marblehead Asset Management, emphasized that it's "dangerous not to be in stocks right" due to the risk of missing a takeover with a fat premium.
  • The energy sector is expected to see a wave of deal activity, with some analysts comparing it to the late 1990s when major oil companies were acquired.
  • Pharmaceutical companies, such as Mylan and Perrigo, are also considered takeover targets themselves, with Mylan offering $28.9 billion for Perrigo.
  • General Electric announced the sale of $26.5 billion in real estate assets as part of its restructuring plan to sell most of the $500 billion in assets of GE Capital over the next two years.

Statistics:

  • The Dow Jones Industrial Average gained 1.66 percent for the week.
  • The S&P 500 rose 1.70 percent for the week.
  • The Nasdaq Composite Index jumped 2.23 percent for the week.
  • Oil prices have fallen approximately 50 percent since June.
  • Mylan's acquisition offer for Perrigo is valued at $28.9 billion.
  • General Electric plans to sell $500 billion in assets of GE Capital over the next two years.

Sources:

  • "Market Watch"
  • "The Wall Street Journal"
  • "Bloomberg"
  • Interview with Mace Blicksilver, director of Marblehead Asset Management