US stocks ended higher on Monday on merger season, but gains were clamped by a rising dollar, falling oil prices and some growing worries over a December rate hike.
Although largely priced in, prospects for a December hike from the Federal Reserve have strengthened from 60% at the end of September to around 70% on Monday as regional central bankers have become more vocal for one, and the prospects of a game-changing Donald Trump victory at next month’s US presidential poll ebb. All of that helped boost the dollar Monday.
Perhaps muddying the water as they did, several Federal Reserve officials spoke Monday, including Chicago Fed President Charles Evans. He said the Fed needs to keep interest rates lower for longer, so investors are convinced the central bank is serious about reaching its inflation target of 2%.
James Bullard, the St. Louis Fed president, said in a speech early Monday that low interest rates are likely to be the norm over the next three years, as the United States is under a low-productivity growth regime.
S&P 500 closed 0.5% higher at 2151, with the information technology sector rising 1%. The Nasdaq composite outperformed, gaining 1% to 5309.
The US oil benchmark West Texas Intermediate fell 0.65% to settle at $50.52 per barrel after Iran said it wanted to be exempted from an OPEC deal which would cut production next month, denting the prospect of the Algiers deal ever coming through.
AT&T (NYSE:T) reached a deal to buy Time Warner on Saturday for more than $85bn, or $107.50 per share. Already on Monday two major ratings agencies, Standard & Poor’s and Moody’s have threatened to downgrade AT&T on its latest corporate adventure. Read more.
As such, the combination brings Time Warner full circle back to the first Dotcom bubble, when it created a merger with AOL— which failed and resulted in a later breakup.
AT&T closed down 1.7% at $36.86 and Time Warner down 3.1% at $86.74.
Among other takeovers buoying the market, TD Ameritrade (NYSE:AMTD) announced it's buying Scottrade for $4bn in a two-step deal with TD Bank (TSE:TD). TD Ameritrade said it would end up paying $2.7bn for Scottrade's brokerage business after the sale of Scottrade Bank to Toronto-Dominion Bank's US banking unit for $1.3bn.
TD Ameritrade closed down 4.4% at $35.46. Toronto-Dominion Bank closed up 0.3% at C$60.16.
Meanwhile, airplane interior maker B/E Aerospace (NASDAQ:BEAV) saw its stock surge by 16.4% to $58.89 after announcing it's being bought out by Rockwell Collins (NYSE:COL) for $6.4bn. Rockwell shares closed down 6.3% at $79.21.
The S&P Midcap 400 ended up 0.5% at 1534 led by B/E Aerospace.
The S&P Smallcap 600 ended up 0.8% at 739 and led by electronics group Voxx Intl Corp (NASDAQ:VOXX), up 8.9% to $4.30 after Zacks said VOXX was one its its Rank #1 (Strong Buy) companies with “a decent earnings surprise history, beating estimates thrice in the trailing four quarters and boasts of a whopping average positive surprise of 251.7%.” Can’t say fairer than that.
Early trading
Merger mania kept US stocks buoyed on Monday after news that S&P 500 name Rockwell could mop up a mid-cap stock.
The market was also unfazed that the offshore Chinese currency, the renminbi, hit a record low against the US dollar on Monday after policymakers in Beijing allowed the onshore rate to decline and a spate of data dampened the outlook for the world’s biggest emerging market economy.
The S&P 500 was up 0.5% at 2152 and led by tech stocks. First in line was Qorvo Inc (NASDAQ:QRVO). Up 4.5% to $57.15 on technical factors ahead of its November 3 earnings release. It’s a semiconductor company that designs, manufactures, and supplies radio frequency systems and solutions for applications that drive wireless and broadband communications
Next in line is anti-virus software maker Symantec Corp (NASDAQ:SYMC) up 3.1% to $24.83 and graphic software maker Nvidia Corp (NASDAQ:NVDA) up a similar amount.
The S&P Midcap 400 was up 0.5% to 1534 and led by BE Aerospace Inc (NASDAQ:BEAV) up 15.5% to $58.46. Late on Sunday it was confirmed that Rockwell Collins (NYSE:COL) will buy the company for a total of $8.3bn. Rockwell shares were down 6.6% to $78.95 and leading the declines on the S&P 500 of which it is a constituent.
The S&P Smallcap 600 was up 0.7% to 739 and led by Oriental Financial Group (NYSE:OFG) up 8.7% to $10.78. The company released Q3 results on Friday.
AT&T (NYSE:T) shares were lower by 2.2% at $36.66 after it confirmed plans to buy media conglomerate Time Warner (NYSE:T="" rel="5905" t-inc.="">NYSE:TWX), down 2.2% to $87.56, for $85.4bn.
But the telecoms giant had some bad news to watch. Credit rating agency Moody’s has warned AT&T that it is being reviewed for a downgrade as a result of the takeover plans.
The transaction, which is expected to face an uphill battle to win regulatory approval, could saddle AT&T with as much as $170bn debt when completed.
The company could see its rating cut to Baa2, the second-lowest investment grade opinion.
Pre-Open
US shares are set to go higher ahead of another day of corporate earnings.
Big news at the weekend has been the mega merger plans from US phone giant AT&T Inc (NYSE:T) which has made a US$85bn bid for media behemoth NYSE:T="" rel="5905" t-inc.="" time="" warner="">NYSE:TWX).
If allowed to go through by the authorities, it would catapult AT&T past Walt Disney Co (NYSE:DIS) and Comcast Corporation (NASDAQ:CMCSA) and make it the largest entertainment company in the US.
AT&T shares are down 1.87% in pre-market, while Time Warner eased 0.87% to US$88.7.
On Friday, US shares pared initial losses to close flat flat after a roller-coaster ride in an earnings season.
After a lowly start even a few record-breaking openers for blue-chips could not jazz up, the market drifted for most of the session before inching to unchanged.
The S&P 500 market bellwether ended the session at 2141 and only 9 points above where it had begun the week. It was also just 90 points above where it was a year ago.
The Dow Jones meanwhile closed down around 16 at 18,145 and the tech heavy Nasdaq index was up around 15 at 5,257.
Meanwhile, in futures today, the S&P 500 is up around nine points, the Nasdaq is ahead by over 27 and the Dow Jones is racing up 72 points.
In London, FTSE 100 is up a quarter of a percent and ahead of 7,000 at 7,037. Investors were mulling a drop in month UK industrial activity with better than expected services and manufacturing data in Europe.
On Wall Street today, markets are looking to more earnings ahead with Kimberly-Clark Corp (NYSE: KMB) and Restaurant Brands International (NYSE: QSR), which is the firm behind Burger King and Tim Hortons reporting.
Gold is down 0.17% at the time of writing at US$1,265 an ounce, while US crude (West Texas Intermediate) is also lower - at US$50.31 a barrel - down 1.08%.