Mega mergers point to gains ahead in the market, if history is any indication

AT&T and Time Warner, TD Ameritrade and Scottrade, Rockwell Collins and B/E Aerospace: These recent mega mergers and acquisitions could give way to big upside in the market, if history is any indication.

An analysis conducted by S&P Global Market Intelligence found that in the year-long period following large M&A deals in the U.S., the S&P has generally performed positively — the market, on average, has gained 9.16 percent in that time.

"Of the 10 largest previously announced deals which had more than a one-year period from their announcement date, in seven occurrences the S&P 500 gained while in three instances the index retreated in the one-year period following the deal announcement," according to the report published Monday following the announcement of AT&T's deal to buy Time Warner, the third-largest ever announced U.S. M&A transaction on record, trailing behind AOL's acquisition of Time Warner in 2000 and Verizon Communication's acquisition of Cellco Partnership in 2013.

The deal, according to the report, has increased M&A activity in October 2016 to over $249 billion.

But investors shouldn't fear a frothy market top in light of big M&A action, according to Ari Wald, head of technical analysis at Oppenheimer.

"We see, actually, very healthy bull-market-type activity underneath the surface, so I wouldn't be worried about the elevated levels of M&A activity," Wald said Monday on CNBC's "Power Lunch."

Wald said he sees a change in market leadership; investors are moving to high-beta and cyclical stocks, Wald said, indicating "bullish risk-on appetite," setting up for what he deems the "next leg of the bull market."

"We don't see that toppy activity at all; we want to be exposed to equities right here," Wald said.

These big deals may also simply indicate a changing economic landscape for big business, and reflect uber-low interest rates.

"It's certainly not exactly a positive sign to see so much M&A coming up, but I think part of the reason here may have to do with just, actually, rates," Boris Schlossberg, managing director of FX strategy at BK Asset Management, said Monday on CNBC's "Power Lunch."

"Maybe companies are simply seeing the last possible time where they can have cheap financing going forward."

And technology growth today has created a "winner-take-all economy," Schlossberg added, in which companies may seek to grow in size in order to remain competitive.

Interest rates themselves are part of the driving force in merger and acquisition activity, Schlossberg added, in addition to the "organic need to get bigger in this economy where you have to just dominate your markets, or you can't compete at all."


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more