“Let’s Make a Deal” Market: Bullish Sign or Warning?

MARKET ROUNDUP
Dow	-28.43 to 18,011.94
S&P 500	-2.13 to 2,109.60
Nasdaq	-6.41 to 5,076.52
10-YR Yield	+0.07 to 2.266%
Gold	+$4.50 to $1,193.20
Crude Oil	+$1.13 to $61.31

Monty Hall hasn’t shown up on the floor of the New York Stock Exchange yet. But that isn’t cooling this “Let’s Make a Deal” market at all!

Research firm Dealogic just reported that U.S. mergers-and-acquisition activity surged to $243 billion last month. That topped the two previous records — $226 billion in May 2007 and $213 billion in January 2000.

Helping things along were the biggest technology sector merger since the dotcom bubble, Avago’s $37 billion purchase of Broadcom, and the $90 billion, mega-cable deal between Charter Communications (CHTR), Time Warner Cable (TWC) and Bright House.

Wall Street deal-making heats up.

But it wasn’t just the telecommunications and technology sectors swept up in M&A mania. Health care took third place with almost $34 billion in announced deals. Right behind that sector were the utilities and energy, with $19.5 billion in M&A.

If you throw in non-U.S. activity, you get a whopping $1.7 trillion in announced M&A deals so far this year, per Reuters. That’s up 35% from a year earlier — easily putting 2015 on pace for an annual record.

Of course, that’s assuming we don’t see any catastrophic selloffs in the global bond or stock markets. Those would crater confidence and cut off the flow of cheap money that has fueled so many of these deals.

There are some potentially concerning developments there – but no out-and-out red flags (yet). For starters, global bond markets are selling off at a fairly aggressive pace. Yields on 30-year U.S. Treasuries just surged to 3.1% from 2.25% back in late January, while yields in Europe have also spiked at the fastest pace in a couple of years.

Parts of the U.S. stock market, like the Dow Transports, are also hanging by a thread. And if you check the dates of the last two major peaks in M&A, it’s not exactly encouraging. I mean, who among us would want to go back to the spring of 2007 or winter of 2000 and put all our money in stocks?

“The figures easily put 2015 on pace for an annual record.”

My suggestion is to continue to invest prudently in highly rated stocks, in strong sectors experiencing their own “private” bull markets (a la aerospace, consumer staples or health care). Balance that out with investments in sectors that have been beaten to a pulp and that are the cheapest in decades (energy). Then closely watch incoming developments, not to mention Money and Markets, for future warnings if they become necessary.

But that’s just me. Where do you stand? Is the surge in M&A a sign of the next apocalypse? Or is it a bullish indicator for stocks? Any particular stocks or sectors that you believe could benefit next from the surge in M&A? Be sure to share them over at the Money and Markets website when you have a minute.

Our Readers Speak

Will Greece ever get its act together? Is the job market finally getting on track? Will inflation actually make a comeback? Or are we headed for a second major leg down in the euro and the economy? Those questions, and more, were being hotly debated at the website overnight.

Reader Donald L. said: “Predictions: Greece will default ‘in place.’ No one will dismantle the Parthenon and carry it away, but the E.U. will eat about fifty cents on the dollar. OPEC will muddle through, i.e., each country will look out for themselves first and production will stay almost the same.

“In the U.S., the jobs report going forward will have less and less real meaning because of distortions caused by shrinking, part time, unreported and just plain dropouts of the workforce. Overall, little of value will get done before 2017.”

Reader Chuck B. added: “We are in a Depression. Remember, a Depression is not a collapse, but a period of decreased economic activity, with ups and downs, but no real prosperity for most people. Our unemployment level is actually much higher than the doctored official figures, and wages have been falling for quite a few years, when adjusted for inflation.

“Only people in the top few percent are very happy with their incomes – most are not happy at all. Inflation itself has been falling, and the Fed can’t raise interest rates without pushing over into deflation – which may soon happen anyway.”

Reader Badger10 also planted himself firmly in the deflation camp, saying: “Seven years of low interest rates have not given us sustainable growth. The low labor participation rate indicates a higher employment figure than the Labor Department estimates. Wages have not increased, indicating most new jobs are low pay and part-time. And we have an $18 trillion debt that has to be paid down in order to get sustainable growth.”

Finally, Reader Deerflyguy advised not taking ANY of the data we get at face value. His take: “In this day and age of so much manipulation of facts and figures, lies and fabrications, and basically worthless currencies wherever you look, why use such data in what seems more and more futility when predicting market movement?

“Just look around and see the world for what it is. Base your investments on what you see happening daily across the wires, and use your gut, and common sense to make your movements. Watch what the banks, politicians, and big investors are doing, and forget all that other manipulation crap!”

Some great advice there, Deerflyguy, and I hope everyone appreciates it. I certainly watch the data when it hits the tape. But I pay much more attention to what’s really happening on Main Street and in the markets when it comes to making investment decisions and recommendations.

As for the inflation/deflation, growth/no-growth debate, I agree that this has been a subpar recovery. It hasn’t benefited average American workers the way we all wish it would. Frankly, I think if Washington and the Fed would get the heck out of the way and stop trying to “help,” things would look a lot better. But no one has nominated me for Fed Chair … yet.

Want to add anything else to the mix? Then please do weigh in over at the website using this link!

Other Developments of the Day

Greek deal? No Greek deal? I’ve lost count of all the conflicting reports. But here’s one from the Financial Times that tries to hit as many bases as possible, with an optimistic bent.

China was a major source of inflation when its economy was booming. Now, it’s the source of too much deflation in a wide range of goods – or so says the Wall Street Journal. The story notes that Chinese tires, steel, solar panels and other products are being exported at bargain-basement prices by desperate manufacturers trying to keep the doors open.

Speaking of China, hundreds of passengers are trapped and feared dead after a Yangtze River passenger ship capsized. More than 1,000 police officers are desperately trying to rescue survivors from the Eastern Star, which overturned during stormy weather.

Counting on the Transportation Security Administration to keep you safe the next time you fly? Then don’t read this story, which notes that an undercover operation found gaping security screening holes at multiple airports. A stunning 67 out of 70 attempts to smuggle fake weapons or explosives were successful, according to a “Red Team” designed to test screening procedures.

Let me know your thoughts on those stories or any others over at the website.

Until next time,

Mike Larson