Stocks Climb on Increased M&A Activity and Lower Bond Yields

Rich Asplund - Barchart - Mon Feb 27, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +1.06%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +1.01%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.31%.

U.S. stock indexes this morning are moderately higher on increased M&A activity, with Seagen surging more than +11% after the Wall Street Journal reported that Pfizer is in early-stage talks to acquire the company. Also, Focus Financial Partners is up more than +3% after CD&R said they would purchase the company for $53 a share in a deal valued at more than $7 billion.

A decline in bond yields today also supports stocks, with the 10-year T-note yield down -3.5 bp to 3.908%.

Today’s U.S. economic news was mostly positive for stocks after Jan capital goods new orders nondefense ex-aircraft, a proxy for capital spending, unexpectedly rose +0.8% m/m, stronger than expectations of unchanged and the biggest increase in 5 months. Also, Jan pending home sales rose +8.1% m/m, stronger than expectations of +1.0% m/m and the biggest increase in 2-1/2 years. Conversely, the Feb Dallas Fed manufacturing outlook level of general business activity fell -5.1 to -13.5, weaker than expectations of -9.3.

Positive corporate news is supportive of the overall market. Union Pacific is up more than +9% after the company said it would replace CEO Fritz amid pressure from major shareholder Soroban Capital Partners. . Also, Netflix is up more than +3% after Apptopia reported that downloads of the Netflix app rose 22% over the past week, the top increase for streaming apps. In addition, Albermarle is up more than +3% as lithium-production stocks gained after China shut down a lithium production hub after an environmental probe found mining violations.

On the negative side, Tegna slumped more than -22% after the Federal Communications Commission shelved Standard Gerneral’s proposed $5.4 billion buyout of the company. Also, Range Resources is down more than -7% after Pioneer Natural Resources said it’s “not contemplating “ a deal for the company. In addition, Lumen Technologies is down more than -4% after Moody’s Investors Services downgraded the company’s long-term corporate debt rating to B2 from Ba3.

Overseas stock markets are mixed. The Euro Stoxx 50 today is up +1.80%. China’s Shanghai Composite stock index closed down -0.28%, and Japan’s Nikkei Stock Index closed down -0.11%.

Today’s stock movers…

Union Pacific (UNP) is up more than +9% to lead gainers in the S&P 500 after the company said it would replace CEO Fritz amid pressure from major shareholder Soroban Capital Partners.

Seagen (SGEN) is up more than +11% to lead gainers in the Nasdaq 100 after the Wall Street Journal reported that Pfizer is in early-stage talks to acquire the company.

Netflix (NFLX) is up more than +3% after Apptopia reported that downloads of the Netflix app rose 22% over the past week, the top increase for streaming apps.

Albermarle (ALB) is up more than +3% as lithium-productin stocks gained after China shut down a lithium production hub after an environmental probe found mining violations.

Universal Insurance Holdings (UVE) is up more than +15% after Piper Sandler upgraded the stock to overweight from neutral.

Frontier Communications (FYBR) is up more than +6% Raymond James upgraded the stock to strong buy from outperform.

Pulmonx Corporation (LUNG) is up more than +5% after Wells Fargo Securities upgraded the stock to overweight from equal weight.

Focus Financial Partners (FOCS) is up more than +3% after CD&R said they would purchase the company for $53 a share in a deal valued at more than $7 billion.

Tegna (TGNA) slumped more than -22% after the Federal Communications Commission (FCC) shelved Standard General’s proposed $5.4 billion buyout of the company. Wells Fargo Securities said the FCC’s move suggests the deal will fall through.

Range Resources (RRC) is down more than -7% after Pioneer Natural Resources said it’s “not contemplating “ a deal for the company.

Lumen Technologies (LUMN) is down more than -4% to lead losers in the S&P 500 after Moody’s Investors Services downgraded the company’s long-term corporate debt rating to B2 from Ba3.

Pfizer (PFE) is down more than -1% on reports that it is in active discussions to acquire Seagen in a deal that could exceed $40 billion.

Across the markets…

March 10-year T-notes (ZNH23) today are up +9 ticks, and the 10-year T-note yield is down -3.5 bp at 3.908%. Mar 10-year T-notes this morning are moderately higher on some short covering. Month-end portfolio rebalancing by bond fund managers supports T-note prices, and reduced supply concerns are also bullish, with no Treasury bond auctions until March 7. However, higher European government bond yields limit the upside in T-note prices today, with the 10-year German bund yield climbing to an 11-year high of 2.579% and the 10-year UK gilt yield climbing to a 4-month high of 3.807%.

The dollar index (DXY00) today is down by -0.34%. The dollar index fell back from a 1-1/2 month high today and is posting moderate losses as weaker T-note yields weigh on the dollar. Also, a rally in stocks today has reduced the liquidity demand for the dollar.

EUR/USD (^EURUSD) today is up by +0.36%. The euro today recovered from a 1-1/2 month low and is moderately higher. Hawkish comments from ECB President Lagarde gave EUR/USD a boost when she said we’ll hike rates by 50 bp at next month’s ECB meeting and "we'll hike more if needed to return inflation 2%." The euro today initially moved lower on weaker-than-expected Eurozone economic news on Feb economic confidence amd Jan M3 money supply.

ECB President Lagarde said, "there's every reason to believe that we'll do another 50 bp rate hike in March," and "we'll hike more if needed to return inflation 2%."

Eurozone Feb economic confidence unexpectedly fell -0.1 to 99.7, weaker than expectations of an increase to 101.0.

Eurozone Jan M3 money supply rose +3.5% y/y, weaker than expectations of +3.9% y/y and the slowest pace of increase in 8-3/4 years.

USD/JPY (^USDJPY) today is down by -0.37%. The yen today recovered from a 2-1/4 month low against the dollar and moved higher as weaker T-notes yields sparked short-covering in the yen. The yen today initially dropped t a 1-1/4 month low on comments from Bank of Japan Governor nominee Ueda who said the BOJ’s current stimulus outweighs its side effects and that underlying inflation needs to show a major shift to change the course of monetary policy.

April gold (GCJ3) this morning is up +6.3 (+0.35%), and March silver (SIH23) is down -0.160 (-0.77%). Precious metals prices this morning are mixed moderately lower, with silver dropping to a 3-1/2 month low. A weaker dollar today is supportive of metals prices. Also, lower T-note yields today are bullish for precious metals. Silver prices are undercut on industrial demand concerns in China as recent data shows property sales in China continued to plunge in the first three weeks of this month, and Chinese car sales continue to lag. A bearish factor for gold prices is the continued liquidation of gold holdings in ETFs after gold holdings fell to a new 2-3/4 year low last Friday.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.