Market Recap (Oct. 24)

Dow industrials bounced back from a rocky start to ride a Friday rally to a 1.4% gain for the week. This week is the fourth straight that the DJIA has seen overall returns, a mark not matched since January of this year. The S&P 500 rose by 1.1% while the NASDAQ 100 dropped by the same amount. Trading opened down this week as investor confidence was shaken following pessimistic comments made by German Chancellor Angela Merkel’s spokesperson Steffen Seibert. Seibert indicated that an agreement on a solution for the European sovereign debt crisis would likely not be reached at the EU summit planned for October 23. Markets remained volatile over the course of the week as new information was leaked on prospects for the summit. The euro recouped the losses it sustained earlier in the week on Friday as German finance minister Wolfgang Schaeuble contradicted Merkel and said that he hoped for a resolution.

A number of S&P 500 companies released third quarter earnings reports this week. The tech sector as a whole generally reported losses and missed earnings targets while a recent spate of mergers and acquisitions in the energy industry has boosted that sector. Bank of America (BAC) reported a profit of $6.2 billion while Goldman Sachs (GS) reported only their second quarterly net loss since the company went public in 1999. The market reaction to BofA’s report was mixed, however, as much of those profits were due to accounting methods and a one time sale of China Construction Bank stock.

McDonald’s (MCD) stock price rose to record heights following third-quarter earnings gains of 8.6% on the back of same-stores sales growth. By and large, big corporations returned healthy profits and are maintaining healthy balance books. Demand is still sluggish in the US market where the economy is still stagnating but many S&P 500 companies are offsetting this by increasing their exposure to overseas markets. Ultimately, while this is good for the S&P, small business owners are left at a huge disadvantage moving forward.

Bottom Line: the markets are currently in flux, waiting for any potential resolutions from this weekend’s summit. Investors are seeking clarity on recapitalization for European banks and how much Greek bondholders’ losses will affect those banks.
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Editorial Staff

M&A Activity Review

Kinder Morgan Acquires Rival 
Pipeline giant Kinder Morgan announced that it will buy rival company El Paso Corp. for $21.1 billion in cash and stock. With the acquisition, Kinder Morgan will become the largest operator of nature-gas pipelines in the United States. This deal puts increased faith in the future of natural gas a potential energy source and will catapult Kinder Morgan to the fourth largest energy company in America. Kinder Morgan recently became a public company this year and raised $2.9 Billion in its February IPO.

Groupon Strides Toward I.P.O.
Groupon, which is heading towards its public offering, expects to sell 30 million shares at about $16 to $18 a share, valuing the company at as much as $11.4 billion. Groupon hopes to break even before their public offering around November 3rd. Groupon is an internet start up that finds discounts at local restaurants and stores, and now is approaching 150 millions subscribers. 

Carlyle and Blackstone Compete for Merger Market 
The Carlyle Group and Blackstone were active in the merger market during the first three quarters this year, with Carlyle group completing 20 deals assessed at $4.1 billion and Blackstone signed 11 deals approximately valued at $16.9 billion. Overall data from Q3 from 2011 was up 7.4% from Q3 2010, and private equity firms completed $76.4 billion worth of deals internationally.
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Editorial Staff