Stocks closed lower across the board as Wall Street continued to stay on edge as earnings season marched along and sellers looked for any reason to sell and buyers remained hard to convince.
But first: What's with all the deals? Well a few things, really, as I view much of the merger activity of recent as sector-specific verses some overarching trend in the world of M&A. Sprint (S) and T-Mobile (TMUS) continue to lose ground to larger rivals Verizon (VZ) and AT&T (T) as the two fight to build out critical 5G spectrum with less resources than their larger counterparts. Marathon's (MPC) acquisition of fellow petroleum refiner Andeavor (ANDV) for $23.3 billion is about the target's failed efforts to increase its value and the buyer's need to grow to help spread costs in the pipeline industry. Walmart's (WMT) sale of its U.K. business comes off as a move to raise capital and invest in other areas (i.e. e-commerce). Hello Flipkart. Timeshare companies Marriott Vacations (VAC) and ILG (ILG) are also merging, as the timeshare business continues to go through a lot of consolidation. These companies seek further scale and capital resources to build and improve their assets, much of which were built during the timeshare boom in the 90s and 2000s. To be sure, on the macro level, capital is still cheap and importantly private investors (hedge funds and PE) and corporates have been sitting on piles of cash for almost a decade. With the markets' current volatility and its previous run-up, targets are shaking out a little faster than they have in years past.
Back to the markets. Perhaps the biggest scare on Monday was the dismal earnings report from Arconic (ARNC) . The lightweight metals manufacturer lowered its earnings outlook for the year as aluminum prices increase. "With the announcement of the aluminum tariffs and Russian sanctions, we are currently experiencing a steep increase [in aluminum pricing]," Ken Glacobbe, Arconic's chief financial officer, said during a conference call with analysts. "In fact, since the separation of Alcoa, aluminum prices have steadily increased by more than 40%." Due to the rising price of aluminum, the New York-based Arconic trimmed its full-year adjusted earnings outlook, though it raised its top line estimates.
"Is it time to 'sell in May and go away?'" we ask ourselves for yet another year as we flip the calendar and Action Alerts PLUS holding Apple (AAPL) as well as Tesla (TSLA) are both on tap to report later this week. According to Real Money columnist James Deporre, the summer months underperform especially when they are compared to the November - January period but, like most generalizations, there are glaring exceptions. He explains that while it's been eight years since the 'Sell in May' adage really worked, it may actually be time to take a serious look at the strategy this year. Based on the charts, the odds are higher than they have been in a while, Deporre said, adding that "there is a very high potential for a breach of support levels after earnings season is over if significantly higher than it has been in the past."
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Photo of the day: A long-anticipated merger
Sprint (S) and T-Mobile (TMUS) may finally get their wish and pair up with one another. At least, that's the hope. The two telecoms announced Sunday that they would merge in a deal valued at $26 billion. The deal comes after Sprint and T-Mobile attempted to merge back in 2014 but saw their merger scuttled by the Feds. T-Mobile, Sprint and all the telecoms in the U.S. today are a product of a litany of M&A deals. In 2011, for instance, AT&T (T) , which is currently involved in a merger debacle of its own as it looks to buy Time Warner (TWX) , attempted to buy T-Mobile, only to watch that merger also scuttled by the folks in Washington. Perhaps there's better luck to be had for the telecoms under the new administration, or perhaps recent M&A efforts are exercises in futility. Read More
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