It was a tale of two markets today as blue chips gained and large-cap stocks dipped ever-so-slightly, while tech and small-company shares were beaten down.
Getty Images The Dow Jones Industrial Average rose 0.3% to 17,031.14, while the S&P 500 slipped 0.1% to 1,984.13. The Nasdaq Composite, however, slumped 1.1% to 4,518.90 while the small-company Russell 2000 tumbled 1.2% to 1,146.52.
The big news today wasn’t the economic data–weaker industrial production and a stronger Empire State manufacturing survey–but M&A, as SABMiller expressed interest in Heineken, and Aneheuser-Busch InBev (BUD) is thought to be pursuing SABMiller. UBS strategists Julian Emanuel and Omar Elangbawy expect more takeovers thanks to the strong US dollar:
The stronger dollar should result in relative outperformance for S&P 500 companies whose revenues are derived primarily from within the United States/North America, especially those companies that source product inputs from offshore. Conversely, export oriented firms with large revenue exposures outside North America could face competitive challenges as well as margin pressures from dollar strength. An unintended consequence of dollar strength is likely to be a continuation of the trend toward cross-border M&A, as corporate managements look for creative ways to put uninvested cash to work, especially overseas “trapped cash”, a sum we estimate…to be in excess of $800bn.
Former JPMorgan strategist Thomas Lee has returned with his own firm, Fundstrat. And he’s as bullish as ever:
Looking at all bull markets of at least 5 years in duration, none has ever ended without US investment spending at 26% of GDP or higher versus a current 23%. The current level is historically a trough in a recession and rising to the bull average would imply $800b of incremental investment in the US. Furthermore, the current 30Y vs 10Y yield curve is 75bp and has always inverted prior to (or shortly after) the bull peak.
Lee expects the S&P 500 to close 2014 at 2,100.
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