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Market Is for Sale, and Nasdaq Withdraws Bid for NYSE

Monday, 16 May 2011 | 9:21 AM ET

The market is for sale, and has a problem. It's not the Dominique Strauss-Kahn bombshell, though that doesn't help. The real issue is not the commodity selloff, and not just the European debt issues, it's the end of QE2...no one is sure what it means, but everyone believes it was the primary factor for the Great Fall-Winter Rally that took the S&P 500 from 1,060 to almost 1,375 in 8 months.

Elsewhere:

1) Nasdaq/ICE withdraws bid for NYSE Euronext on the grounds they could not get regulatory approval. What is clear is that Nasdaq CEO's Bob Greifeld previous optimism that he would receive regulatory approval was misplaced.

So misplaced that last week Nasdaq was forced to admit that it "has received to assurances from the Department of Justice as to the timing or outcome of the review." That, in retrospect, is an understatement.

NYSE Euronext shares are down nearly 10 percent pre-open, while Deutsche Boerse shares were trading up in Europe.

The Department of Justice also expressed concerns that the merger would dampen competition in opening and closing stock auction services and equity data products.

This is the second failed bid from Nasdaq—they lost the bid for LSE, although that was a different situation (LSE did not want to sell).

This is not the end of the line for the NYSE-Deutsche Boerse deal. The biggest risk is that Deutsche Boerse would have to raise its bid, and anger its shareholders, which required 75 percent approval. It is now unlikely that DB will have to sweeten the deal.

But this deal too faces regulatory issues, more so in Europe: that it represents too much control and lends itself to a potential pricing monopoly.

What about Nasdaq? They are in trouble: they are now a target, likely for the IntercontinentalExchange or the CME .

Speaking of exchanges, TMX Group, the operator of the Toronto and Montreal stock exchanges received a competing offer from a consortium of Canadian banks and pension funds of Canadian $48/share. The offer, which seeks to keep the company in the hands of Canadian ownership, exceeds the London Stock Exchange's previous $3 billion bid by 24 percent.

2) Lowe's (LOW) falls 5 percent on disappointing Q1 results ($0.34 vs. $0.36 consensus). Comps for the home improvement retailer fell 3.3 percent as sales were hampered by severe weather and tough comparisons from last year's stimulus program.

For the current quarter, comps are seen up 2 percent, with earnings of $0.65-$0.69 consensus (vs. $0.68 consensus). Guidance for the full year is cut to $1.56-$1.64, below the $1.70 the Street has been expecting.

3) JCPenney rises 5 percent after beating estimates ($0.28 vs. $0.25 consensus) despite a small decline in margins, which were hurt by free shipping offers. Comps rose 3.8 percent, thanks to strength in women's and children's apparel sales.

Comps this quarter are seen rising 3-4 percent and earnings are seen between $0.20-$0.24 vs. $0.22 consensus. Longer term, 2011 earnings are seen between $2.15-$2.25, and the department store expects to more than double its earnings per share to $5.00 by 2014.

4) JP Morgan raised priced targets on every airline, citing lower fuel. With fuel down $0.30 a gallon since April 29, they are surprised that there has not been a single earnings revision. But look at how aggressive the price targets are: Delta raised to $20 from $18.50, now trading at $10.65...UAL raised to $47 from $41...trading at $25.60...AMR raised to $9.50 from $8.00, trading at $6.54.

Airlines are up 1-2 percent on that, note JPM also upgraded AMR and JetBlue to overweight.

5) The housing market remains depressed, but that's not worrying private equity firm TPG Capital. The firm agreed to acquire housing search website operator Primedia for $7.10/share in cash, a hefty 62 percent premium from Friday's close.

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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