Market Drivers: Volatility, Mergers and Earnings

Markets again stayed in a relatively tight trading range throughout most of the week, but staged a late week rally as earnings and the Fed took center stage.  Here are three things that have been driving the market this week.

Volatility

Economic data and anticipation ahead of the FOMC statement had markets on the move Wednesday. Indexes started the day unchanged following a muted response to Q2 GDP data, but rallied to intra-day highs after the mid-morning crude inventory report. The euphoria was short lived though, as traders realized that the positive data could entice the Fed to change their current monetary policy. Markets continued to slip to the negative side into the 2:00 Fed announcement. When the Fed news was released, the knee jerk reaction was to the upside, when as expected, the Federal Open Market Committee decided to maintain its current policy stance. The short rally was quickly erased, and the rest of the day saw sharp volatility before ending the day 21 points to the down side.

Merger Mania

We saw quite a bit of M&A news in the markets this week, with several large deals being announced. Here is a recap: Omnicom Group and Publicis Groupe announced a merger of equals that will form the world’s largest advertising company. The new company will have a market cap of $35 billion and more than 130,000 employees. In retail news, Saks Inc. has received an offer from Hudson's Bay to be acquired for $16 per share, representing a 4.5% premium to Friday's closing price. On the pharma side, drugmaker Perrigo has agreed to acquire Elan for $16.50 per share, in a $8.6 deal. Lastly, Michael Baker has entered into an agreement to be acquired by Integrated Mission Solutions for $40.50 per share. The purchase price represents a 36.8% premium.

More Earnings

We have passed the unofficial midpoint of earnings season and as of the close on Wednesday, 326 of the S&P 500 have announced earnings with 73% reporting beats on EPS, and 56% beats on revenues.  Here are some notable results from the week: Casino operator Wynn resorts saw their shares rally on an earnings miss, but in line revenues. Pharmaceutical giants Merck and Pfizer both saw their shares fall after beating on earnings, but failing to top revenue estimates. Merck’s saw weak overseas sales of prescription drugs that were slammed by the stronger dollar as the basis for their revenue weakness, while Pfizer pointed to patent losses and government cost-containment efforts as reasons for their shortfall. A big winner this week came out of Anheuser-Busch In Bev whose shares rallied over 6% after reporting a bottom-line miss on above-consensus revenue.

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