I mentioned the other day that the Fed was probably done cutting. Well, today investors got some data that might suggest another round of cuts. The unemployment number came in at 4.9% (last month was 5.0% - this was a huge surprise), but the big news was the non-farm payroll number. Analysts were looking for an increase of 70,000, but the number actually fell by 17,000. This marked the first contraction since August 2003. Early morning trading was quite volatile, but we remained positive mostly likely because investors were looking for more rate cuts.
Also, pushing the market higher was Microsoft’s takeover bid of Yahoo for $44.6B ($31 per share). Yahoo exploded up about 50% while Microsoft was down about 6%. This offer by Microsoft was 60% above Yahoo’s Thursday closing price. Some say Microsoft is overpaying, and there is talk that Google might also make a bid. I cannot see this acquisition getting done any time soon because Google will take Microsoft to court. Here is a finance.yahoo.com article explaining some of the things that will slow down the possible acquisition.
This story of Microsoft’s takeover bid sparked talk of more M&A (mergers and acquisitions) on Wall Street. M&A cooled down significantly the second half of 2007 due to the tightening credit markets, but since the Fed has stepped in and acted aggressively, there seems to be more promise for M&A.
The Fed also announced that it will hold two more auctions in February (11th and 25th) to provide $60B in cash to commercial banks. The Fed said it will continue to have these auctions “for as long as necessary to address elevated pressures in short-term funding markets.”
Also in the news, Google missed analysts’ earnings expectations and the stock sunk to $520 (off of its $747 high just a few months ago). Google will be in the dog house for the next few months just like Apple and the rest of tech. Looking long term, this is a very good entry point based on valuations, but don’t look for any big short-term moves.
Right now people are very positive (especially because the Fed has realized they are behind the curve and they have some catching up to do) and I expect this rally to continue into next week. The only thing stopping it is more bad news from the mortgage and bond insurers. If a rating agency decides to downgrade Ambac or MBIA, the markets will immediately reverse course.
Here is a great Bloomberg.com article that summarizes the big events of the week and what to look for next week.
This is an article which associates
Don't expect much to come out of Google's bid - it has antitrust written all over it.
ReplyDeleteIronically, that is what Microsoft is screaming about Google's DoubleClick acquisition....