Unmoved by the Mergers

The deluge of at least $65.3 billion in total merger activity couldn't drive up the major averages Monday, but that doesn't mean the bullish run for stocks is over.

With interest rates low, oil prices still under $60 per barrel, historically strong seasonal trends in place, Goldilocks-like economic data streaming in and short-term investors chasing year-end returns, the stock market's mixed reaction to the Monday's" merger mania" is not necessarily a sign of a correction at hand. Instead, the response may be a reflection of short-term money managers chasing performance.

"The deals are just two more examples of tremendous value in the equity markets," says Margaret Patel, portfolio manager at Pioneer Investments, referring to the day's two largest transactions: Freeport-McMoRan's(FCX Quote) $26 billion buyout of Phelps Dodge(PD Quote) and Blackstone Group's $36 billion offer for Equity Office Properties Trust (EOP Quote), which would be the largest private equity buyout ever.

Even with the recent rally, equities still look cheap relative to Treasuries, Patel says. "The continued M&A activity just shows the relative cheapness of borrowing money to buy equities," she says. "People looking for a big correction are going to be disappointed."

In recent history, announcements of massive deals drove the entire market up sharply. On Nov. 6, $20 billion in announced deals help drive the indices up over 1% each, even ahead of the dreaded uncertainty surrounding the next day's midterm elections. This Monday, however, the buyout news drove action in the relevant companies and industries, but the three major indices ended the day nonplussed.