Archive for ND&S Updates
M&A Up-Cycle?
February 19, 2013
02.19.13
The Markets took a breather last week, with the S&P, Dow and Nasdaq all ending virtually unchanged, while the Russell 2000 small cap did advance by a full percentage point. The action for the week was in individual names, and some are talking about a true Mergers & Acquisition up-cycle [much bigger than the March 2011 false-start]. According to Bloomberg, there were 3,179 deals announced this year [thru 02/15]. These deals total $288B, with an average deal size of $90.7M.
Monday was dominated by Italian and Spanish political turmoil [moreover, 4Q Eurozone GDP shrank 0.6% q-to-q], while Tuesday represented a pause ahead of the State of the Union address.
On Wednesday Comcast reported strong earnings and sooner-than-expected acquisition of GE’s remaining 49% stake in NBCUniversal, which produced 3%+ moves in both stocks.
Warren Buffet stepped up with a $28B purchase of Heinz Thursday, a 20% premium to preannouncement levels. Wal-Mart dominated mid-session trading Friday when Bloomberg outed internal emails describing its early February sales as a “total disaster”.
Finally, on a much more upbeat note, Maker’s Mark quickly reversed its plan to water its whiskey from 90 to 84 proof. Bill Samuels, chairman emeritus called it the “worst five days in my life”. Its parent Beam, Inc. responded today by advancing 1.8% in a relief rally.
“You may not realize it when it happens, but a kick in the teeth may be the best thing in the world for you.”
Walt Disney
Good Enough?
February 12, 2013
02.12.13
Last week stocks continued their advance with the S&P 500 up 0.31%, although the DJIA did slip by -0.12%. Fourth quarter 2012 earnings reports for the 2/3rds of companies that have reported so far are beating lowered expectations and are averaging a 7.3% increase. However, a number of companies have lowered forecasts for the first quarter, citing slowing economies in Europe and a hesitant U.S. consumer. Higher social security taxes and concerns over looming government spending cuts are two of the latest government induced drags on the economy. Analysts are now projecting a rise of just 1.7% for earnings in the first quarter this year.
On March 1, $85 billion in automatic spending cuts are set to go into effect unless Congress acts. There have been a number of proposals by both Republicans and Democrats to replace the across the board cuts with more targeted spending cuts or revenue enhancers (tax increases). These negotiations are likely to dominate the headlines as we get closer to March 1. In the short term this may unsettle the equity markets, but in the long run any compromise which reduces government spending and also reduces the deficit will be a positive.
“A statesman is he who thinks in the future generations, and a politician is he who thinks in the upcoming elections.”
– Abraham Lincoln
Upward March?
February 4, 2013
Last week U.S. stocks continued their upward march with the DJIA up 0.8% and the S&P 500 up 0.7%. Year-to-date the Dow is up 6.9% and the S&P 500 is up 6.1%.
Much of last week’s headlines were focused on the U.S. economy. 4th quarter GDP posted its first decline since 2009. Two major areas of weakness came from a slowing of inventory investment and a drop in government purchases. Encouragingly, residential investment jumped 15.3%, equipment and software spending was up 12.4%, and most notably personal consumption spending was up 2.2%—all supportive of a growing economy despite the headline number.
Last week’s Labor Report for January showed continued improvement of 157,000 net jobs created. The previous two months were revised higher by 127,000 jobs, although the unemployment rate did tick up to 7.9%.
We remain constructive on the markets, but would not be surprised or disappointed to see a near-term pull-back given the nice run-up over the past few months.
“Life is 10% what happens to you and 90% how you react to it.” -Charles Swindoll
Held Hostage…
February 25, 2013
02.25.13
Washington, once again, is holding the economy and the markets hostage. Fears of looming sequestration cuts, along with concerns about slower global economic growth and political instability in Europe contributed to markets losing a bit of ground last week.
The S&P 500 closed lower by 0.3% last week as the streak of seven straight weekly gains came to a close. The NASDAQ finished lower by 1% while the Dow Jones Industrial Average eked-out a 0.1% gain.
We expect volatility to continue as the US deals with the approaching deadline for sequestration on this Friday – March 1st. Adding to investors’ squeamishness is Fed Chairman Ben Bernanke’s comments before Congress this week, the upcoming election in Italy and a slew of economic reports.
Investors should not be surprised by corrections … they are quite normal and expected. Valuations remain reasonable, and we expect to ride-out any impending storm.
Spring is only a few weeks away!
“Compromise is when one person wants to rob a bank and the other person does not, and they compromise to rob a person outside of the bank.”
– Christopher Myers