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Can Deal-Driven Stock Stamina Continue as Quarter Closes?

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March 31, 2015

Add it up: Over $17 billion in deals in Monday’s session to push all major stock indices solidly higher for the day. That included the strongest session for the Dow Jones Industrial Average (DJIA) since February and was enough to flip the blue-chip barometer back to positive for the year. Monday’s four powerful handshakes set a daily record for deals involving publicly traded health-care and related businesses, according to data compiled by Bloomberg. The move in the S&P 500 (SPX) was enough to land the broad index back near the closely watched 2100 marker, and securing a push above this line could open the door to more upside, at least if you ask the bulls. But Monday’s big broad-market move could push some participants to the sidelines considering the shortened week and looming major data. Remember, quarter end can invite added intra-day volatility especially toward the close. Position-squaring into Friday’s payrolls report, which hits with most markets dark for Good Friday, could also factor into action over the next few days.

Big Business. UnitedHealth Group (UNH) tallied Monday’s largest purchase — $13.2 billion for drug-benefit manager Catamaran Corp. Teva Pharmaceutical Industries (TEVA) made a $3.1 billion splash with Auspex Pharmaceuticals. Horizon Pharma agreed to buy Hyperion Therapeutics for $866 million for a move into what’s largely considered the lucrative rare disease category. And Fujifilm Holdings is acquiring Cellular Dynamics, a maker of human cells, for $239 million. All figures include net debt. It’s March deal madness that Bloomberg reporters argue could signal only the beginning of more tie-ups in this space. Keep an eye out.

FIGURE 1: STILL COUNTING IT UP. Monday’s health care mega-deals leave the market buzzing about the potential for more transactions to come this year, Bloomberg reports. Here, a comparison of recent years’ activity. Data/chart source: Bloomberg. For illustrative purposes only. Past performance does not guarantee future results.

A Push for June? Arguably the hawkiest of current Federal Reserve hawks, Richmond’s Jeffrey Lacker said the case for higher interest rates, even as soon as the June meeting, is getting stronger. In prepared remarks for a Tuesday speech reported by MarketWatch, Lacker said he expects solid growth and hotter inflation this year as a strong dollar and lower energy prices are only temporarily holding back inflation. "I expect that, unless incoming economic reports diverge substantially from projections, the case for raising rates will remain strong at the June meeting," said Lacker, a policy-voting member this year. He’s predicting rising consumer spending supported by healthy income growth.

How’s the Quarter Shaping Up? The S&P 500 is currently positioned to end Q1 up about 1.3%, which would mark its ninth-straight winning quarter. For the month of March, the index is looking at a 0.9% loss. The bigger story may be the tech-studded NASDAQ Composite (COMP), on track to log a 4.5% gain in the quarter.

Good trading,
JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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