Rising rates, rising stocks could wake up sleepy deal market: Morning Brief

Markets / August 3, 2022 / Admin / 0

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Wednesday, August 3, 2022

Today’s newsletter is from Brian Cheung, a newscaster and reporter covering the Fed, economics and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

Transactions are down this year, but signs of a possible market bottom could cause some companies to shop when prices are cheap.

The catalyst: a stock market that has rebounded around 10% from its June lows, bolstering investor optimism that the worst of 2022 may be over.

And, of course, continued interest rate hikes from the Federal Reserve.

Big deals have been in the news for the past few weeks: Amazon’s (AMZN) play for One Medical (ONEM) and JetBlue’s (JBLU) fight to acquire Spirit Airlines (SAVE) are just two examples.

A Spirit Airlines plane prepares to take off from Oakland International Airport on July 28, 2022 in Oakland, California. (Photo by Justin Sullivan/Getty Images)

A handful of deals have emerged even as of this week.

The Toronto-Dominion Bank (TD) announced on Tuesday that it would buy investment bank Cowen. And Estée Lauder (EL) is said to be in talks to buy the Tom Ford fashion house.

“There’s a sense that prices have fallen and there’s some value to be gained, particularly if you’re in the market for something that’s a significant strategic acquisition,” said practice lead Marc Kushner. American mergers and acquisitions law firm Dorsey & Whitney. .

Another factor: interest rates.

As the Federal Reserve raises borrowing costs to rein in inflation, companies fear it will cost them more to fund transactions the longer they wait. Kushner told Yahoo Finance because the Fed’s rate hikes have happened so quickly that companies are worried about stalling trades for even a week due to rate volatility.

“You may or may not be at the bottom of the value market, but low interest rates are already gone and it’s only going to get worse in the near term,” Kushner said.

Still, the volume of transactions in the first half of this year is much lower than the previous two years. According to KPMG data, companies around the world have signed around 24,000 deals with a total value of around $1.8 trillion.

This compares to more than 32,000 transactions in the first and second half of 2021, with aggregate transaction values exceeding $2.6 trillion in each period.

KPMG's mid-year M&A report noted that global deal activity is slower than in the past two years. For companies specifically based in the United States, 6,085 deals (worth around $827 billion) were signed in the first half of the year. (Source: KPMG, CapIQ, Refinitiv, Pitchbook) — KPMG’s mid-year M&A report noted that global deal activity is slower than in the past two years. For companies specifically based in the United States, 6,085 deals (worth around $827 billion) were signed in the first half of the year. (Source: KPMG, CapIQ, Refinitiv, Pitchbook)

An uncertain economic outlook clouded by inflationary pressures and a war in Ukraine has sidelined many buyers who would otherwise have been happy to deploy capital in deals.

Nonetheless, KPMG noted that there is pent-up demand for the deals. About 80% of business leaders surveyed in the United States say their appetite for deals is “as strong or stronger” than in 2021.

Private equity firms and activist investors, for example, are already eating off cheaper prices from the 2022 stock market spill. billions of dollars to buy up public companies and privatize them.

At Elliott Investment Management, cheaper stock prices may have allowed the Paul Singer-led fund to take stakes in Pinterest (PINS) and PayPal (PYPL), stocks that have both suffered heavy losses since late 2021.

And if the stock market rebound continues and the mood among investors continues to improve, bargaining efforts to get ahead of an aggressive Fed could only accelerate.

What to watch today

Economic calendar

7:00 a.m. ET: MBA Mortgage Applicationsweek ended July 29 (-1.8% the previous week)
9:45 a.m. ET: S&P Global US Services PMIJuly final (47 expected, 47 in previous month)
9:45 a.m. ET: S&P Global US Composite PMIJuly final (47.5 in previous month)
10:00 a.m. ET: Factory ordersJune (1.2% expected, 1.7% in previous month)
10:00 a.m. ET: Factory orders excluding transportJune (1.7% over the previous month)
10:00 a.m. ET: Durable Goods OrdersJune final (1.9% expected, 1.9% in previous month)
10:00 a.m. ET: Durable goods excluding transportJune final (0.3% in previous month)
10:00 a.m. ET: Orders for non-defence capital goods excluding aircraftJune final (0.5% in previous month)
10:00 a.m. ET: Shipments of non-defence capital goods, excluding aircraftJune final (0.7% in previous month)
10:00 a.m. ET: ISM services index (53.5 expected, 55.3 in previous month)

Earnings

Amerisourcebergen (ABC), Allegiant Travel (ALGT), Allstate (GER), Booking Holdings (BKNG), Biomarin Pharmaceutical (BMRN), Borgwarner (BWA), Cars.com (CARS), Civitas Resources (CIVI Clorox (CLX), CVS Health (CVS), elf Beauty (ELF), Energy Transfer (ET), Fate Therapeutics (FATE), Fastly (FSLY), Fortinet (FTNT), Cedar Fair (FUN), GoDaddy (GDDY), Genco Shipping & Trading (GNK) ), Generac Holdings (GNRC), Hostess Brands (TWNK), Host Hotels & Resorts (HST), McKesson (MCK), MercadoLibre (MELI), MGM Resorts International (MGM), Moderna (MRNA), Marathon Oil (MRO), MBIA (MBI), MetLife (MET), Monster Beverage (MNST), New York Times (NYT), Novavax (NVAX), Realty Income (O), Pacific Biosciences of California (PACB), PDC Energy (PDCE), Qorvo ( QRVO), Sturm Ruger & Company (RGR), Sunrun (RUN), Stratasys (SSYS), STORE Capital (STOR), Under Armor (UAA), Western Union (WU), Yum!Brands (YUM)