U.S. stocks gained in February extending the best January rally since 1987, and the best first two month return since 1991. This strong start sets up 2019 with a high probability for a positive annual return based on historical data since 1928. U.S. stocks are near a 70 year high relative to Developed Market equities and March 6, 2019 is the tenth anniversary of the S&P 500’s intraday bear market low of 666 in 2009 that marked the end of the 2007-9 Global Financial Crises.
On February 28, Chairman Powell addressed the Fed’s dual mandate of maximum employment and stable prices: “I am pleased to say that, judged against these goals, the economy is in a good place. The current economic expansion has been under way for almost 10 years. This long period of growth has pushed the unemployment rate down near historic lows.” We agree. In sum, the U.S. economy is doing just fine and the Fed will be “patient” with regard to future rate changes as well as review its balance sheet size target soon. With the ECB and the PBOC in monetary easing mode and some progress on the complex trade wars and Brexit fronts, stocks may continue to add to recent gains.
A burst of Merger and Acquisition activity kicked off on Merger Monday, February 25th with the following deals – General Electric said it would sell its biopharma business to Danaher Corp (DHR) for about $21.4 billion boosting DHR’s s drug development market capability and driving DHR’s stock higher – Swiss drug giant Roche Holding AG is buying Philadelphia based Spark Therapeutics (ONCE) in an all cash $4.3 billion gene therapy deal - Canadian miner Barrick Gold offered to buy U.S. rival Newmont Mining (NEM) in a hostile $18 billion all-stock deal creating a giant global gold miner – and Cincinnati based Multi-Color Corp (LABL) announced a $2.5 billion merger to be acquired by private equity firm Platinum Equity LLC for $50 a share in cash.
Value investor Warren Buffett hinted in his 2018 letter to Berkshire Hathaway Shareholders that his next major acquisition may be overseas. We see many potential merger possibilities ahead of us this year as a number of other catalysts materialize within businesses globally, couple that with the focus on the 2020 elections in the U.S., and companies will have to continue to strongly examine M&A as a viable option within the more comfortable confines of today’s corporate environment.
Column by Gabelli Funds, written by Michael Gabelli