Bears Dazed and Confused by M&A

Monday's deluge of M&A activity is a reminder that there's still a whole lotta liquidity sloshing around the financial world.

The announcements of deals totaling about $20 billion Monday morning eclipsed midterm election angst, rising oil prices, hawkish Fed-speak and the specter of rate hikes. The deal-making reignited the bullish view that the economy is strong, profit growth can keep going and stocks are still undervalued.

"M&A is a sign of confidence," says James Paulsen, chief investment strategist at Wells Capital Management. "People wouldn't do these deals if they thought everything is going to hell."

On that note, the stock market rebounded solidly Monday after a string of weak sessions. The Dow Jones Industrial Average added 119.5 points, or 1%, to 12,105.55, while the S&P 500 gained 1.13% to 1379.78. The Nasdaq Composite registered a gain of 1.51% to 2365.95.

"M&A is an extreme example and another reminder that there are oodles of excess liquidity out there," says Paulsen. Evidence of still-loose liquidity can be found in the record, $285 billion of U.S. private equity deals announced this year, according to Thomson Financial, as well as $1.37 trillion of overall M&A activity, up 28% from the same point in 2005. Add to that tight credit spreads, low default rates, record levels of corporate stock buybacks and soaring commodity prices, excluding energy -- although crude moved back above $60 per barrel Monday.