What’s the Deal? Investors Could Learn Lesson As Two Mergers Scuttled

The failed mergers might be one point of focus Thursday, and investors could also be watching inflation data.

5 min read

Key Takeaways

  • Two major Wall Street mergers called off over the last day
  • Earnings news continues to pour in, with recent results looking pretty strong
  • Inflation data look mixed, with another key inflation report due tomorrow

(Thursday Market Open) Sometimes the market is more about what’s not happening than what is. Two major corporate deals got called off in the last day, potentially giving investors a lesson about how easily expectations can be dashed.

Rite Aid (RAD) shares plunged 8% in pre-market trading Thursday after the company’s $24 billion merger deal with grocery company Albertson’s fell through. The two companies evidently weren’t able to agree to a deal structure, news reports said.

In addition, Tribune (TRCO) called off a $3.9 billion deal with Sinclair Broadcast Group (SBGI). Shares of both firms actually climbed in pre-market trading, though this divorce didn’t appear particularly amicable. CNN reported that Tribune plans to sue Sinclair for “breach of contract.”

The details might be less important to the average investor than the lesson these blown deals can teach. Sometimes people get hyped up about rumors of deals, but until all the “i’s” are dotted and “t’s” are crossed, investors have to be careful. As we see with RAD today, shares can fall pretty hard if a deal doesn’t work out. Sometimes retail investors hear about possible deals and want to jump into these things, but it’s dangerous to take it for granted that the agreement will ultimately happen.

Comparing Producer Prices

Aside from the deal news, a fresh batch of U.S. inflation data kick off the trading day Thursday. The July producer price index (PPI) came in flat, the government said, below Wall Street analysts’ expectations for a 0.2% rise. However, a core PPI gauge that strips out food, energy, and trade rose 0.3%. The 12-month PPI change now stands at 3.3%, down from 3.4% a month ago. That still points toward price increases potentially having an impact, as producers might be tempted to eventually pass along their higher costs to consumers. The consumer price index for July is tomorrow (see more below).

Stocks had a mixed feel ahead of the opening bell after overseas markets pointed different directions. China’s sagging market popped back a bit earlier Thursday, but European indices mostly fell. On the earnings front, Roku (ROKU) shares jumped more than 9% in pre-market trading after the technology company beat Wall Street analysts’ earnings expectations, and Yelp (YELP) ran up 15% pre-market gains as results looked strong.

Treading Water As Earnings Wind Down

None of these developments really seems all that major, and the general market mood remains subdued a day after the SPX came within 1% of its all-time high of 2872. There doesn’t seem to be a lot of fresh bullish news to help carry the market over that particular hump, and stocks spent most of Wednesday treading water before giving ground as the closing bell approached. 

We’re in the final act of earnings season, so each day there’s probably going to be less and less corporate news to react to, perhaps making geopolitical issues like tariffs stand out a little more. This could be positive or negative for stocks, depending on the daily headlines.

None of this detracts from what’s been a solid earnings season for much of the market. Average earnings growth for S&P 500 companies so far has been well over 20% for Q2, surpassing pre-earnings estimates from Wall Street. That said, there don’t seem to be many meaningful catalysts right now pointing the direction as the season comes to an end. Over the next few months, the looming November U.S. midterm elections might eat up more and more of the headlines, and it’s still not certain how the market might react to that news flow.

In addition, the Treasury market’s direction seems unclear. After powering above 3% for a short time last week, 10-year yields couldn’t hold those gains and eased back to 2.95% by early Thursday. It’s possible that concern about the trade situation with China could be capping yields.

One Streak Ends But Another Continues

A four-day win streak for the S&P 500 Index (SPX) sputtered to an unremarkable end Wednesday as the SPX inched a little lower. Still, the day wasn’t a complete washout as the Nasdaq (COMP) rose for the seventh-straight session amid an info tech boost from some of the FAANG stocks. 

Otherwise, the sector scorecard looked mixed Wednesday, with industrials among the hardest hit groups amid more chatter about a possible trade war with China. This fear seems to ebb and flow based on the headlines of any given day, and when investors have bearish trade news to chew on it’s typically been hitting some of the multinationals in the Dow Jones Industrial Average ($DJI). Some industrials under pressure Wednesday included Boeing (BA), Caterpillar (CAT), and Lockheed Martin (LMT). 

Another big stock, Disney (DIS), also took a beating Wednesday after the company posted weaker results than Wall Street analysts had expected. Just about all of the company’s key businesses fell short of Wall Street analysts’ expectations in Q2.

FIGURE 1: Crude Dive: It’s been a rough week for crude oil, which slid to its weakest level since late June amid concerns about U.S. trade with China as well as general Chinese demand trends. Data source: CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.  

Airline Stocks Lift Off: With crude oil retreating below $67 a barrel Wednesday (see more below), some of the airline stocks seemed to get a boost, including United Continental (UAL), which set a new 52-week high, and Southwest (LUV). Back a few weeks ago when crude was up near $71, some investors began to fade the airlines, but with crude now well below that, the business model for airlines looks a little better and most of the airline stocks are performing well in a really tough industry. Strong July traffic news from LUV announced Wednesday might also have helped that stock.

Crude Market Gazes West: It already seems pretty clear that the stock market is jumpy about trade with China, and now the concern appears to be hitting the crude market as well (see chart above). Exhibit One came Wednesday, when U.S. crude prices slid more than 3% to seven-week lows below $67 a  barrel after news of the latest round of U.S/China tariffs and counter-tariffs and slowing Chinese oil demand growth. On a dollar basis, China is the world’s biggest oil importer, and though its July oil imports rose slightly from a year ago and from June, some analysts fear Chinese demand could be flagging due in part to thinning margins affecting China’s smaller refineries, Reuters reported this week. 

Any sign of weaker oil demand from China, whether it’s trade-related or perhaps due to internal market issues, has the potential to weigh on world energy prices and also potentially on major energy-producing companies. That said, crude might continue to draw support from tensions between the U.S. and Iran and from below average U.S. supplies.

Inflation Report Parade Continues Friday: After today’s July producer prices index (PPI) report, focus could turn to tomorrow morning’s consumer price index (CPI). Last month’s CPI showed a 2.9% gain year-over-year, the largest since 2012. Many analysts interpreted this as a sign that inflation is starting to push into the economy, perhaps with implications for Fed policy. Ahead of tomorrow’s number, Wall Street analysts expect a slight gain of around 0.2% month-over-month, according to Briefing.com. Core CPI, which excludes food and energy, is also expected to rise 0.2%. Still, it’s the year-over-year number that might bear watching. One school of thought is that if inflation as measured by CPI grows near 3%, it might cancel out some of the economic benefits of recent wage hikes. Last month’s payrolls report showed a 2.7% year-over-year rise in hourly wages.

Good Trading, 



Helpful Educational Content and Programming
  • Check out all of our upcoming Webcasts or watch one of the many archived ones, covering a wide range of topics from market commentary to portfolio planning basics to trading strategies for active investors. No matter your experience level, there’s something for everybody.
  • Looking to stay on top of the markets? Check out the TD Ameritrade Network, which is live programming that brings you market news and helps you hone your trading knowledge.
  • Plus, there’s a new playlist on the TD Ameritrade YouTube Channel: Introduction to Volatility, featuring recent content from the TD Ameritrade Network.

The TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation.

Economic Calendar for this week. Source: Briefing.com
Call Us

TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.  

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.


Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2018 TD Ameritrade.

Scroll to Top