Big Deals Hold Back the Dow
Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Two massive corporate deals have the Dow Jones Industrial Average near breakeven for the day despite positive economic news. As of 1:30 p.m. EDT the Dow is down 0.11% to 14,795, while the S&P 500 is up a modest 0.22%.
There were three U.S. economic releases today.
The purchasing managers' indexes from both the Institute for Supply Management and Markit showed that economic activity expanded in August from July. Markit's PMI showed activity expanding at a slower rate than in July. ISM's reading showed activity expanding at a slightly faster rate than in July, with the new-orders index up nearly 5 percentage points. The only potentially worrisome sign was a large jump in respondents paying higher prices.
Today's other economic release was construction spending for the month of July. The Department of Commerce reported that construction spending rose 0.6% in July to a seasonally adjusted annual rate of $900 billion. That's 5% above last year and higher than June's report of flat construction spending. Analysts had expected only a 0.3% rise.
Labor Day deals
The big news over the holiday weekend was that Microsoft announced that it will acquire Nokia's mobile business for $7.2 billion. Microsoft's stock is down nearly 6% on the news, while Nokia's stock is up 30%. Microsoft said it "aims to accelerate the growth of its share and profit in mobile devices through faster innovation, increased synergies, and unified branding and marketing." Nokia's Steven Elop made a big bet on Microsoft's mobile operating system years ago. Now, as one of the main carriers of the operating system, Nokia will give Microsoft a stronger competitive foothold to compete against Apple's iOS and Google's Android operating system.
Second, Verizon's deal for Vodafone's 45% stake in Verizon Wireless was finally officially announced. Verizon will pay Vodafone $130 billion -- roughly $59 billion in cash and the remainder in stock -- for Vodafone's 45% stake in Verizon Wireless. For Verizon shareholders, the company seems to be making a big bet at a time when margins are at five-year highs and everything is going well. Vodafone shareholders can look forward to a large special dividend and buybacks, with the company committing to return 70% of the deal's value to shareholders.
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The article Big Deals Hold Back the Dow originally appeared on Fool.com.Dan Dzombak can be found on Twitter @DanDzombak or on his Facebook page, DanDzombak. He owns shares of Vodafone. The Motley Fool recommends Vodafone. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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