Trader Talk

Why M&A Is Not Driving This Market


Futures higher on Case Schiller Home Price Index: July S&P/Case-Shiller 20 City Home Price Index comes in at 144.23, a higher number than expected and the highest level for the index since January 2009. The index is up 1.61 percent from the June levels.

Prices are down 13.3 percent year over year, also less than expected and the smallest decline since February 2008.

The index is not seasonally adjusted.

Once again, the market leaders-commodity stocks, industrials, financials and tech stocks-reasserted themselves yesterday. The markets were higher, even though the dollar was stronger.

The argument that the market advanced on merger news is silly: the important point is that the market has bounced at least three times on the modest 2 to 4 percent pullbacks that we have seen since June, so it is simply continuing a trend.


1) Walgreen rises 7 percent after its Q4 earnings topped estimates ($0.40 vs. $0.39 est.) as stronger pharmacy margins helped boost the drugstore's overall gross margins. The chain's same-store sales were up 2.4 percent in the quarter, thanks in large part to a 4.5 percent rise in prescription same-store sales. Stronger prescription sales, however were offset by a 1.4 decline in general merchandise comp. store sales.

2) Gannett up 23 percent pre-open; its Q3 earnings will exceed current analyst forecasts. The media publisher sees Q3 EPS between $0.39 and $0.42 vs. $0.28 consensus estimate. as continued cost cuts including "significantly lower newsprint expense" helped.

Still, the media giant cautioned that "overall advertising revenue comparisons remain difficult" as expected revenues of $1.31 billion and $1.32 billion are short of the Street's forecast of $1.38 billion.

3) JP Morgan's Jamie Dimon, noting that this was the right time to begin the succession process, is shuffling his senior management around a bit. Among several changes, Steve Black, co-CEO of the Investment Bank, will become Executive Chairman of the Investment Bank; replacing him as CEO of the Investment Bank will be Jes Staley, currently head of Asset Management.

Bottom line: big win for Jes Staley. Investment banking has been a huge outperformer, and anyone running investment banking is in line to succeed Dimon.

4) CIT up 15 percent pre-open on heavy volume as the NY Post reported that hedge fund manager John Paulson was considering merging CIT Group with IndyMac Federal Bank (IDMCQ), though there are no formal discussions going on.

Paulson was part of a consortium that bought IndyMac from the FDIC earlier this year and also owns CIT debt. IndyMac does only mortgage loans, whereas CIT is one of the largest lenders to mid- and small-size businesses. CIT bondholders are meeting on Oct. 1 to work out a restructuring plan.

5) Fannie Mae saw a rise in mortgage delinquencies in July. Delinquent mortgage payments that were at least 90 days behind rose from 3.94 percent in June to 4.17 percent in July.

6) REIT IPOs keep coming: Chesapeake Lodging Trust filed for an initial public offering of $460 million; the company is organized as a real estate investment trust (REIT) and will invest in high-end hotels in major business, airport and convention markets. No word on when the IPO will be floated.

7) The Chinese are everywhere: the FT reported that CNOOC , the Chinese state-owned oil company, is in talk with Nigeria to buy large stakes in some of the largest oil blocks there. They have been buy commodity assets all over the globe in an effort to lock in access to commodities considered vital to their continued growth.



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