The stock market had a gloomy close on Friday, selling off sharply in the final 30 minutes without a news catalyst acting as the driver. It was a fitting end to a week that was long on growth concerns and short on returns. Specifically, the major indices declined between 2.8% and 5.1%; and the S&P 500 (-4.1%) suffered its worst week since September.
It may not be surprising then to see the futures for the major indices trading higher this morning, as some presumptive bargain-hunting activity is in play. Another source of uplift is a slate of M&A activity that included some hefty premiums over Friday’s closing prices.
Currently, the S&P 500 futures are up nine points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 31 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 71 points and are trading 0.2% above fair value.
The M&A deals of note include the following:
- Amgen (AMGN) buying Horizon Pharmaceuticals (HZNP) for $116.50 per share in cash (a 19.8% premium)
- Thoma Bravo buying Coupa Software (COUP) for $81.00 per share in cash (a 30.5% premium)
- BDT Capital Partners acquiring the remaining shares of Weber, Inc. (WEBR) it does not already own for $8.05 per share (a 23.9% premium)
On a related note, Microsoft (MSFT) announced a 10-year strategic partnership with the London Stock Exchange Group, noting it will also purchase an approximately 4% equity stake in the London Stock Exchange Group through the acquisition of shares from the Blackstone (BX)/Thomson Reuters (TRI) consortium.
The gains expected at the open aren’t expected to be unbridled, however.
While the news flow has been generally supportive for a rebound try, market participants are well aware that Tuesday will feature the Consumer Price Index for November and that the FOMC will publish a new policy directive on Wednesday along with an updated Summary of Economic Projections that is expected to include an increased median estimate for the terminal fed funds rate.
With these key happenings on the near horizon, buyers are expected to show some general restraint.
The CME FedWatch Tool shows a 72.3% probability of a 50-basis points rate hike on Wednesday in the target range for the fed funds rate to 4.25-4.50%. Per usual, Fed Chair Powell will hold a press conference to discuss the Committee’s policy decision and to offer some insight on the Fed’s updated economic and interest rate projections.
It will be a fitting hump day on Wednesday, because the CPI data and the Fed decision are big humps the market needs to get over if it wants to make a run at a year-end rally. If either, or both, disappoint in a meaningful way, then a year-end rally becomes a more challenging proposition.
The Fed isn’t going to be alone in its rate-hike pursuits this week. The ECB and the Bank of England will be out with policy decisions on Thursday. Like the Fed, they are also expected to announce a 50-basis points hike in their key policy rates. The November Retail Sales Report will also be part of Thursday’s news mix.
This will be an important week on the macro front, but like any other week, some micro waves will be made by individual companies. Whether those waves can move the market will depend on what company is making the waves.
For now, it’s a fairly calm day at the beach with a little sunshine in the opening forecast.
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Originally Posted December 12, 2022 – A little sunshine in the opening forecast
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