U.S. equities finished in the red despite trading in positive territory for most of the session on excitement over one giant and a few smaller buyout deals.
The biggie was the disclosure of a $62 billion all-cash offer for Monstanto Company (NYSE:MON) from Bayer announced on Sunday. That values the company at $122 per share, a 37% premium to the pre-offer share price. Bayer believes the deal will be accretive to earnings in the mid-single digits in the first full year after closing ramping up to double-digits thereafter.
Among the smaller deals was a rejection by Tribune Publishing Co (NYSE:TPUB) of a $15-a-share offer from Gannett Co Inc (NYSE:GCI).
In the end, the Dow Jones Industrial Average lost a fraction, the S&P 500 dropped 0.2%, the Nasdaq Composite lost 0.1% and the Russell 2000 ended the day lower 0.1%. Treasury bonds were little changed, the dollar was mixed, gold lost 0.1% and crude oil lost 0.6% to close at $48.14 a barrel.
Materials stocks led the way with a 1.2% gain: MON rose 4.4% on the buyout news; Xenoport, Inc. (NASDAQ:XNPT) gained 56.4% after agreeing to be acquired by Abor Pharma. Utilities were the laggards, down 1%: TPUB lost 15% on the rejected cash takeover offer; Fiat Chrysler Automobiles NV (NYSE:FCAU) lost 5.1% on reports German regulators believed the company used illegal software to cheat on emission levels.
The Federal Reserve remained in focus on the prospect of a June interest rate hike. Boston Fed President Rosengren said that most of the economic preconditions for a rate hike are on the verge of being met thanks to health hiring and stabilizing inflation.
San Francisco Fed President Williams said that the U.S. presidential election wouldn’t pause rate hikes, of which he believes two to three are appropriate this year. He added that it would be better to hike while inflation is below their target due to inherent policy lags with interest rate moves.
In China, St. Louis Fed President Bullard said the labor market remains tight and could put upward pressure on inflation and that it is good that the futures market is moving away from the expectation of zero rate hikes this year.
Looking ahead, the performance of the U.S. consumer will again be the topic of discussion as Best Buy Co Inc (NYSE:BBY) and AutoZone, Inc. (NYSE:AZO) report results.
For now, stocks remain in stasis: mired in a tight three-month trading range capping a three-year trading range that started when the Dow first closed above the 18,000 level just before Christmas 2014. Breadth continues to deteriorate. And it’s been more than a year without a new record high in the market.
To be sure, there is a lot to worry about. For one, seasonality sucks (“Sell in May …”). We are also heading into what’s likely to be the ugliest presidential election in the modern era — with the potential for a big status quo shakeup on things like trade, energy policy, immigration, health care and more.
Oh, that’s not all. China’s credit bubble looks vulnerable. U.S. economic data has been uneven. The Federal Reserve has been making surprisingly hawkish noises over the past two weeks in an attempt to seemingly prepare an unprepared and stimulus-addicted stock market for as many as four rate hikes this year (vs. the futures market pricing in only a single hike). And oil’s recent rally looks like a temporary reprieve now that the dollar is strengthening and the Canadian wildfires have died down.
Jason Goepfert at SentimenTrader notes that when the S&P 500 has gone a year without a new high, stocks tended to trade lower with a peak of negativity around three months. Of these 13 occurrences since 1928, the average decline was 1.4%.
The good news is that given stocks haven’t really traded lower over the past year, keeping the percentage loss from the record high less than 20%, history suggests prices should bounce back quicker. Of the six other times stocks stalled but didn’t fall very far, the S&P 500 was 13% higher on average one year later.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
