'Fast Money' Recap: M&A Catalyst?

NEW YORK ( TheStreet) -- The markets rallied Tuesday on a resurgence of M&A activity.

The Dow Jones Industrial Average jumped 103.84, or 1.01%, to 10,405.85, while the S&P 500 added 13.16, or 1.22%, to 1,092.54. The Nasdaq rose 27.57, or 1.26%, to 2,209.44.

Guy Adami said on CNBC's "Fast Money" TV show that he believes the market will head lower despite today's rally.

Gary Kaminsky said he wasn't impressed with today's M&A activity, calling it a five out of 10. He said it would have to be significantly stronger to move the market higher.

Karen Finerman, though, was encouraged by BHP Billiton's ( BHP) spurned bid for Potash. She thought it was a very aggressive move that fostered confidence and could ignite other M&A activity in that space.

For a breakout of some stocks from a recent "Fast Money" TV show,check out Dan Fitzpatrick's "3 Stocks I Saw on TV."

3 Stocks I Saw onTV

Joe Terranova said he, too, was encouraged by the M&A activity in the ag space and the continuation of the rally in the tech sector.

Adami cited the tremendous trade volume in Potash today and advised investors to wait for a pullback before getting in.

Kaminsky said the M&A activity around Potash and Genzyme was unimpressive because they involve one "natural buyer." Finerman disagreed, saying Potash could attract bidders from around the globe.

Tim Seymour sided with Finerman on this point, saying mining companies may begin to absorb the ag companies. "It's part of their integrated model." He said BHP will chase this deal and will probably wind up overpaying for Potash.

He said Potash might be too large for some bidders to take on. He suggested Mosaic ( MOS) as a less expensive option.

Terranova said he feels Potash will head north because of a dramatic shift sentiment in the company from a month ago as well as a pricing change and a wheat supply situation that is bullish for corn. "It's a perfect storm."

Melissa Lee, the moderator of the show, shifted the discussion to the retail sector where Home Depot ( HD) and Wal-Mart ( WMT) had raised their forecasts.

Patty Edwards, though, said retailers still have to deal with cautious shoppers. She noted that Abercrombie & Fitch ( ANF) is closing 60 stores, discounting prices by 15% and building inventory.

Lee noted that Research In Motion ( RIMM) was hit after a report that Amazon.com ( AMZN) had discounted the price of its new Torch smartphone to $99.

That prompted Kaminsky to suggest that Microsoft ( MSFT) should throw off its "bored" image by going after RIM.

Is there a bubble in Treasuries and fixed income? Barry Ritholtz, director of research for Fusion IQ, thinks so. He said the situation has gotten to the point where everyone knows that bonds will trade and end badly.

He wouldn't put gold in the same bubble category. But he did say gold has become a "fear" trade where it has ended up as a hedge against both inflation and deflation.

Shifting to a segment on tomorrow's headlines, Lee noted the big hedge fund names have developed a herd mentality when it comes to owning names like Citigroup ( C), Goldman Sachs ( GS), Pfizer ( PFE) and the SPDR Gold ETF ( GLD).

Kaminsky warned that such a concentration doesn't usually bode well in the end. But Anthony Scaramucci defended the moves, saying the funds are choosing names with a lot of liquidity, low P/E and a positive upside bias.

For his hedge fund pick of the week, Scaramucci chose Microsoft ( MSFt). He said it's difficult not to like a stock that has $4.25 a share in cash and trades 8.7 times earnings net of cash. Furthermore, Microsoft is coming out with a new product cycle with Microsoft office 2010, raising dividends and buying back stock.

He said Microsoft has two options: staying put or using some of its $37 billion in cash for strategic acquisitions. Finerman agreed with the pick, saying she's never seen megcap stocks at such low valuations.

Lee brought in Colin Gillis, a BGC Financial analyst, to comment on his downgrade of Yahoo! ( YHOO) to a hold from a buy. He cited a slowdown in display advertising and lower advertising budgets for the downgrade.

Is the 10-year Treasury note going to sink and follow the direction of the bond markets in Japan? Seymour said that aside from higher energy costs, it's difficult to see where deflation is in this country. He said bond yields in the U.S. are low for fiscal and structural reasons, adding a lot of investors are not comfortable in equities.

Commenting briefly on the weak housing market, author Stephen Weiss attributed the problem to overcapacity and little demand. He said single-family starts are going to get worse as banks write off more bad loans.

In the final trades, Edwards liked Syngenta ( SYT) while Terranova liked Apache ( APA). Adami liked Monsanto ( MON), while Finerman favored Genzyme ( GENZ). Kaminsky again picked Expediters ( EXPD).

-- Written by David Tong in San Francisco

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