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Speculation of more Corporate Deals Sends Stocks Higher

March 22, 2013 06:09pm  
Speculation of more Corporate Deals Sends Stocks Higher

 

Talk of more deal-making is propelling stock prices higher, setting the market up to continue its seven-week surge.

Reports that retailers OfficeMax and Office Depot are discussing a merger come after a number of massive corporate deals were announced in recent weeks. Talk of this news is attracting several bullish investors who are betting that said deals are imminent as buyers continue to pay premium prices for publicly traded companies.

The Dow Jones industrial average went up 49 points to 14,031 shortly after noon EST; the gains were widely shared as eight of 10 industry groups tracked by the S&P inched higher. Two stocks went up for every one that dropped on the New York Stock Exchange.

The S&P rose eight points to 1,528, and the tech-heavy NASDAQ composite climbed 12 points to 3,204 as Google crossed the $800 threshold for the first time.

“Investors are more comfortable with taking risk,” said Jack Albin, CIO at BMO Private Bank in Chicago. The increase in investor confidence is seemingly unperturbed by the $1.2 trillion in federal spending cuts that are set to take effect on March 1st unless the White House and Congress find a means to avoid them.

Previous budget quarrels in Washington have shaken financial markets; however, this time around, many investors are unfazed by the prospect that Congress won’t halt the “sequester” from taking place.

“I believe that investors are actually comforted by the talks,” said Albin. “It certainly isn’t ideal, but if Congress can’t figure it out, this is the next best course.”

Markets also rose in Europe following news that the German economy is gaining steam—indexes increased by more than 1 percent in France and Germany.

Stocks of office supply retailers rose following a report that Office Depot and OfficeMax were considering a merger, which would invariably result in considerable cost savings.

OfficeMax soared $2.15 to $12.90, a 20 percent increase, and Office Depot soared 41 cents to an even $5, a drastic gain of 18 percent. Staples also benefited from the talks as the stock also rose from anticipation that more mergers could be on the way for the office supplies industry.

The news follows a recent surge of corporate deals involving household names Dell and Heinz.

News wasn’t good for every industry; however, as health insurers suffered after the release of government data that suggest rate cuts to Medicare plans for next year will be more drastic than originally anticipated.

The two most prominent Medicare Advantage Providers, UnitedHealth and Humana dipped 3 and 7 percent respectively in response to this news.

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