Chatter about prospective merger and acquisition deals offered some balm for frayed nerves, but market watchers are still guarded in their outlook for stocks.
For one thing, the deals discussed Wednesday involved strategic buyers, or corporations that can fund acquisitions with cash on their balance sheets. Private-equity players - who have been worst hit by the recent credit crunch that has roiled financial markets - weren't really in the picture. "I don't think the deal flow talk today changes the credit story," said Barry Hyman, equity market strategist at EKN Financial Services. "There are private-equity deals funded by debt, and then there are company deals financed by equity and cash." Two online brokers got attention Wednesday after The Wall Street Journal reported merger discussions between TD Ameritrade Holding Corp. (AMTD) and E*Trade Financial Corp. (ETFC). Also, energy and metals exchange Nymex Holdings Inc. (NMX) said late Tuesday that it has been in talks to merge with other exchanges, confirming months of speculation. Early in the year, a steady flow of massive private-equity deals helped fuel a market rally. But in recent weeks, the private-equity juggernaut has slowed as tough conditions in credit markets made it more difficult for buyouts to get done. Credit markets have refused to fund a number of recent deals at their original terms, forcing banks to take debt on to their balance sheets to get the deals closed. Some high-profile names have been hit. Last month, Cadbury Schweppes PLC (CSG) said it was postponing the sale of its beverages business to a private-equity firm due to choppy credit markets. Early in August, Home Depot Inc. (HD) disclosed it was in talks to renegotiate the terms of the $10.3 billion sale of its supply business to three private-equity firms. Still, some market watchers believe that Wednesday's roster of prospective deals did offer some positive signals. "Today is a great reminder that if we can just improve confidence, there is a lot of buying power that can be brought in," said James Paulsen, chief investment strategist at Wells Capital Management. | |
| Worst of 'Market Hysteria' May Be Over | |
The Dow Jones Industrial Average was recently up 85 points to 13176, and the Standard & Poor's 500 added 9 points to 1456. "There is optimism there will be deals again, but more importantly, that the whole economic financial system will not implode," said Michael Metz, chief investment strategist at Oppenheimer. He said that more strategic buyers may be willing to make acquisitions as private-equity players have been pushed to the sidelines. "Corporate America is in great shape," said Metz. "With less competition from private equity, they (strategic buyers) are in a position to make more deals, and they will in my opinion." Still, merger news wasn't the only factor in play in Wednesday's market. EKN's Hyman said that stocks are being helped by "anticipation of what a lot of people are starting to call the 'Bernanke Put,' or the anticipation of interest rate cuts that are being built into the market today." Still, Hyman and others are cautious in their outlook. "I’m not sure the decline is over," said Hyman. Any piece of unexpectedly bad economic data could unsettle stocks, he said. Indeed, some of Wednesday news painted a picture that was far from rosy. Toll Brothers Inc.'s (TOL) fiscal third-quarter net fell 85% as the luxury home builder recorded more land writedowns amid continued slowing in new-home construction. Subprime mortgage lender Accredited Home Lenders Holding Co. (LEND) is no longer accepting new U.S. loan applications and will cut more than half its work force as the company deals with the ongoing credit market turmoil. Metz isn't discounting the possibility of more declines, but believes that the worst of the "market hysteria" may be over. "If you get a decline (in stocks), it will be more orderly," said Metz. "Debt markets are signaling that the height of the credit stress is behind us for the time being." Yields on Treasury bills were modestly higher, and Treasury prices dropped sharply early Wednesday, as risk aversion eased somewhat. | |
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