If you are in equities, it pays to hear what Mark Hulbert, editor of the Hulbert Financial Digest, has to say about the financial markets. Below is his article in Market Watch.
From MarketWatch
Stocks are ‘dangerously overvalued,’ M&A deals suggest
Analysis: Every big wave of mergers has ended with a drop in equities
By Mark Hulbert, MarketWatch | June 20, 2014
Here’s one sign a significant stock market decline might occur sooner rather than later: the rapid acceleration of recent merger and acquisition activity.
This past week saw news of another big deal, led by medical-device maker Medtronic’s, MDT -1.25%, announcement of its $43 billion bid to acquire rival Covidien, COV -1.24%.
At the current pace, M&A deals could reach $3.51 trillion this year, the most since 2007, according to data provider Dealogic.
It wasn’t a fluke that a surge in M&A activity coincided with that year’s market top, according to Matthew Rhodes-Kropf, a professor at Harvard Business School and an expert in the field. “Each of the last five great merger waves on record” — going back more than 125 years — “ended with a precipitous decline in equity prices,” he says.
Some experts have found that merger activity surges when stocks are richly priced, at least in part because companies can use their inflated shares to pursue acquisitions.
“The marked increase in recent M&A activity is one more piece of evidence that the market is dangerously overvalued,” says Dennis Mueller, an emeritus economics professor at the University of Vienna in Austria who has studied M&A cycles in the U.S. as well as overseas.
Of course, shareholders of the company being acquired rarely complain, since the acquisition price usually represents a huge premium. Covidien’s stock this past week surged as much as 29%, compared with where it closed the prior week, for example.
Does the recent M&A boom mean you should immediately get out of stocks? Not necessarily, since the volume of M&A activity isn’t an exact market-timing tool.
Mueller says it’s possible that the market is at the beginning of a long M&A boom that could last a few more years.
Rhodes-Kropf agrees that the recent M&A surge doesn’t necessarily mean a bear market is imminent. “Everyone tends to call the bubble too soon,” he says, adding that his hunch is that this merger trend could very well last a while longer.
‘Risk arbitrage’
Read more from MarketWatch >>
From MarketWatch
Stocks are ‘dangerously overvalued,’ M&A deals suggest
Analysis: Every big wave of mergers has ended with a drop in equities
By Mark Hulbert, MarketWatch | June 20, 2014
Here’s one sign a significant stock market decline might occur sooner rather than later: the rapid acceleration of recent merger and acquisition activity.
This past week saw news of another big deal, led by medical-device maker Medtronic’s, MDT -1.25%, announcement of its $43 billion bid to acquire rival Covidien, COV -1.24%.
At the current pace, M&A deals could reach $3.51 trillion this year, the most since 2007, according to data provider Dealogic.
It wasn’t a fluke that a surge in M&A activity coincided with that year’s market top, according to Matthew Rhodes-Kropf, a professor at Harvard Business School and an expert in the field. “Each of the last five great merger waves on record” — going back more than 125 years — “ended with a precipitous decline in equity prices,” he says.
Some experts have found that merger activity surges when stocks are richly priced, at least in part because companies can use their inflated shares to pursue acquisitions.
“The marked increase in recent M&A activity is one more piece of evidence that the market is dangerously overvalued,” says Dennis Mueller, an emeritus economics professor at the University of Vienna in Austria who has studied M&A cycles in the U.S. as well as overseas.
Of course, shareholders of the company being acquired rarely complain, since the acquisition price usually represents a huge premium. Covidien’s stock this past week surged as much as 29%, compared with where it closed the prior week, for example.
Does the recent M&A boom mean you should immediately get out of stocks? Not necessarily, since the volume of M&A activity isn’t an exact market-timing tool.
Mueller says it’s possible that the market is at the beginning of a long M&A boom that could last a few more years.
Rhodes-Kropf agrees that the recent M&A surge doesn’t necessarily mean a bear market is imminent. “Everyone tends to call the bubble too soon,” he says, adding that his hunch is that this merger trend could very well last a while longer.
‘Risk arbitrage’
Read more from MarketWatch >>
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