Goldman Sachs' note out Wednesday said mergers and acquisitions volumes fell 28% year-over-year in the month of February. This was expected at the end of 2018 and worked into market assumptions from wealth managers, but that's still a considerable decline.
The 2018 economy was described as a "year on steroids" by one economist who spoke to TheStreet, as the corporate tax rate cut spurred huge earnings growth against 2017, and freed up cash for big M&A and share buyback activity. When the market fell hard to end 2018, reflecting fears of a slowdown in global economic growth, it became even clearer M&A would slow down. And corporate growth rates likely won't be near where they were in 2018.
M&A and the stock market are usually highly correlated, as both reflect levels of confidence in the economy and corporate performance. If that correlation holds, then something has to give. And with the S&P 500 already up more than 11% year-to-date, some on Wall Street are getting wary the S&P 500 is overbought.
Ross Stores a Buy?
Let's check out what Morgan Stanley analysts said about Ross Stores on Wednesday. The clothing retailer (ROST) - Get Ross Stores, Inc. Report beat earnings estimates. Management guided for earnings per share of between $4.35 and $4.50 for 2019, which Morgan Stanley analysts said in a note is "conservative."
One tailwind some might not be considering for Ross shares is that the company is at the lower end of the discount segment of clothing retail, which bodes well as consumer spending likely slows in 2019 and 2020. Plus, wage growth, which initially pinches retail operating margins, could help Ross. "Ross Stores' lower income customer is well positioned to benefit from macro tailwinds such as stronger wage growth," Morgan Stanley said. "Therefore, we expect Ross Stores to deliver another year of solid EPS growth (+7.4% y/y), with room for more if guidance proves a conservative as it has been in years past."
Micron Revised Down
Susquehanna Financial reduced its estimates on Micron (MU) - Get Micron Technology, Inc. (MU) Report , in a note out Wednesday. The stock fell more than 4% to $38 a share. Poor memory chip pricing is hurting gross margins, the analysts said. This could trickle down to the bottom line, as the analysts move their EPS estimate for 2019 to $6.40 from $6.59.
See why General Electric (GE) - Get General Electric Company (GE) Report , RealMoney's Stock of the Day, continues to get hit.