Tech Stocks Confusion
The weekend after the third tech selloff of October, International Business Machines Corp.
announced it was buying Red Hat Inc.
for a 60% premium. The Nasdaq fell more than 2% on Friday after earnings from Alphabet Inc.
subsidiary Google and Amazon.com Inc
disappointed. The Nasdaq has fallen 8.91% in the past month, and the previously mighty FAANG stocks have tumbled. Now, IBM, which has fallen almost 20% this year, is committing three times its cash pile to Red Hat.
This is a time to buy low, but IBM paid a big price. Investors also don't seem thrilled, as the stock fell almost 3% in premarket trading on Monday.
Of course, IBM likely will use debt to finance the transaction, but this is quite the deal. On the flip side, Red Hat was trading at $133 a share on Oct. 1, so if the the stock was indeed oversold in October's market madness, maybe this deal isn't quite as shocking. The deal would have been a 43% premium had the stock still been trading at $133, still hefty, of course.
Don't Count Out 2018 Just Yet
There are 1,012 earnings reports coming up this week alone. There are 4,336 public companies in the U.S. and, of course, we still have the fourth quarter to examine in December. While solid earnings haven't seemed to suffice for investors, as earnings beats and even some guidance raises have been followed up by markets selloffs, maybe fears of a slowing economy already have been priced into stocks. Maybe solid fundamentals will get rewarded from here on out this year. Like usual, I'll be speaking with money managers, strategists, and analysts to figure out what's baked into asset prices and what's to come, but it's possible 2018 will end with a forgiving bounce.
Could the End of October See a Rally?
While October is historically a bad month for stocks, the last few days of October usually see a bounce back up, according to data from LPL Financial. "Historically, the last few days of October have been some of the strongest of the year," wrote Ryan Detrick, senior market strategist at LPL. He added, "With markets looking extremely oversold, the stage could be set for a rally." LPL believes the U.S. is not necessarily at the peak of the economic cycle. Here's a chart showing what the S&P 500 index tends to do at the end of October: