Nasdaq Hits 5,000! Will $20B in Deals Keep the Tech Train Rolling?

MARKET ROUNDUP
Dow	+155.93 to 18,288.63
S&P 500	+12.89 to 2,117.39
Nasdaq	+44.57 to 5,008.10
10-YR Yield	+0.082 to 2.084$
Gold	-$7.60 to $1,205.50
Crude Oil	+$0.09 to $49.85

They’re busting out the “Nasdaq 5,000” hats on Wall Street today! That’s because the benchmark tech average closed above that key level for the first time since right before the dot-com bubble burst in early 2000!

Not only that, but the tech sector also just closed out a fantastic month. The Powershares QQQ Trust (QQQ) tacked on more than 7.2 percent in February, its best showing in more than three years!

Optimism about economic growth, decent earnings growth and the rotation of money out of bonds and into stocks all contributed to the strong showing. But now we’re going to need another catalyst to keep the train rolling – and that catalyst just might be M&A!

First, Hewlett-Packard (HPQ, Weiss Ratings: B+) just agreed to buy Aruba Networks (ARUN, Weiss Ratings: C-) for $3 billion in cash and assumed debt.

Aruba makes gear used to power Wi-Fi networks, a key area of growth for the tech sector. HPQ’s bid is the company’s largest in several years, and it’s designed to help the firm regain market share in the enterprise services industry.

Aruba Networks is being acquired by Hewlett-Packard as the tech sector continues to heat up.

IMG1 Aruba Networks is being acquired by Hewlett-Packard as the tech sector continues to heat up.

Second, NXP Semiconductors NV said it would buy out Freescale Semiconductor Ltd (FSL, Weiss Ratings: B-) for $16.7 billion in stock and debt.

The move by Netherlands-based NXP for Texas-based Freescale is designed to boost the firm’s presence in the automotive and chip identification businesses. Freescale is known for chips used in consumer goods and next-generation innovations like self-driving cars.

That’s roughly $20 billion worth of tech deals in the span of a couple days. We’ve also seen a ton of acquisition activity in sectors like health care and biotechnology.

In fact, a recent KPMG survey subtitled “The Boom is Back: M&A Reemerges as Leading Growth Strategy” found that 82 percent of respondents surveyed expected to conclude at least one deal this year. Roughly 19 percent of the more than 700 respondents said they would do multiple deals. And 62 percent said technology/media/telecom deals would dominate the activity.

So if you’re looking for a reason the Nasdaq Composite has rallied to 5,000, and could climb even further, M&A might just be the answer!

“If you’re looking for a reason the Nasdaq has rallied, M&A might just be the answer!”

With that in mind, what do you think of the latest moves by H-P and NXP? Do these deals signal a boom in corporate confidence and economic growth? Or is it just a case of companies not having anything better to do with their money?

Are you making money from the M&A boom? And do you think there’s still some gas left in tech’s tank? Let me know over at the Money and Markets website.

Our Readers Speak

The insanity of negative interest rates, the business acumen of Warren Buffett, and the risk of investing overseas were a few of the many topics you weighed in on at the website.

Reader Tommr noted that bonds are just like any other asset class – they can and do get ridiculously overvalued! His words:

“The real reason that bonds are being issued with negative rates is they are OVER PRICED! The Greater Fool thing is really going crazy here in that these buyers are expecting to sell these bonds at even higher prices! I think most of us know the drill.”

Reader Dave also picked up on that message, pointing out that investors are putting way too much emphasis on the supposed “safety” component of bonds. His view:

“Why are so many people willing to buy negative interest rate bonds? No mystery there: The absolute fixation of loss-obsessed investors (undoubtedly most of the retail market by numbers) on the perceived security of bonds, as opposed to other types of investments. Anyone doubtful about the numbers and obsessiveness of this group has only to look at the average rates of return in investment accounts, on which there has been a considerable amount of research.

“This abysmal state of affairs is no doubt the impetus for services such as yours for the admittedly minority of the population who know the dangers of following the herd. Keep up the good work.”

Thanks for those comments, guys. I agree that bonds are not always and forever “safer” alternatives to other investments. They can and do have risks, and investors paying through the nose for them are failing to appreciate those today!

When it comes to Buffett and the potential for an overseas shopping spree, Reader JoAnne P. said: “Being able to sleep well at night is important to me. At this time and in these ‘times,’ I doubt I would sleep well with much money invested in most of the world across the pond. I’ll stay here if you don’t mind.”

But Reader Chuck B. suggested investors can still look East for potential gains. His comments: “I’m looking at China, as it comes out of its current, slight slump. It has a huge potential domestic market to milk, even without exports, and seems interested in doing something about its terrible pollution problems, at last. Its markets are becoming more open, also, as it becomes more capitalistic than the U.S.”

U.S.-traded ETFs that track Chinese shares have definitely been on a tear. Plus, I’m seeing some nice basing/turnaround action in foreign and foreign stocks, after a simply awful 2014. That’s why I’ve started wading into cheap, deeply oversold overseas markets for the first time in a long time!

If you haven’t taken the opportunity to add your comments at the website yet, I encourage you to do so. There are lots of great conversations going on over there, and I’ll do my best to weigh in on them each and every day in my columns!

Other Developments of the Day

Who might succeed Berkshire Hathaway CEO Warren Buffett? He is 84 years old, after all, while Vice Chairman Charlie Munger is 91. No one knows for sure, but this Bloomberg story talks about some potential candidates in the wake of the release of the company’s annual shareholder letter.

Personal income rose 0.3% in January, while personal spending dropped 0.2%. But if you adjust the figures for falling fuel prices, you get a 0.3% increase. That makes the numbers look somewhat more positive, though certainly not fantastic.

The Federal Reserve and investors in the interest rate markets have differing opinions about how high short-term rates will climb, and when various targets will be hit. Pricing in the federal funds futures market suggests rates will only rise to 1.35% by the end of next year; Fed policymakers themselves have a median prediction of 2.5%.

Is that just another reason to expect a Bloody Wednesday or future “accident” in the rate markets? You bet!

Iraq is taking the fight to ISIS, launching an attack on the terrorist group in Tikrit with the assistance of local Sunni and Shiite militias. The city has been under ISIS control for almost a year.

Can humans survive … gasp … without a cellular signal? Lord knows I did growing up, though I sometimes think my kids can’t imagine life without always-accessible wireless service!

This interesting Wall Street Journal story talks about how the proliferation of Wi-Fi signals makes it so you can do almost everything you need to do over Wi-Fi networks … and “cut the cord” from expensive cellular service. I’m not ready to take that step, but more and more people are!

Haha! Here’s the website  link if you want to share your thoughts about these and other news items of the day.

Until next time,

Mike Larson