Big M&A Deal-Makers Drag on 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.
After a much calmer weekend than most expected to have -- i.e., free of bombing in Syria -- the markets opened much higher this morning, with the Dow Jones Industrial Average up more than 100 points and the other major indexes both climbing more than 1%. But as the day drags on, stocks are slipping back toward breakeven. As of 12:55 p.m. EDT the Dow is now down a negligible six points, while the S&P 500 is up 0.27% and the Nasdaq has climbed 0.56%.
The downward slide followed the release of the Institute for Supply Management's manufacturing-sector index for July, which was better than expected. The nonmanufacturing ISM report hit 56% in July, which is 3.8% higher than in the previous month. Business activity rose a massive 8.7% from June to July, marking the 48th consecutive month in which the metric has risen. ISM's employment index also rose, hitting 53.2% -- a 1.5% rise from June and the 12th consecutive monthly gain.
The announcements of a major merger and an acquisition have caused a lot of excitement on Wall Street today, but the buyers in these deals aren't being cheered by investors. Microsoft , which announced this morning that it will purchase Nokia's cellphone business for $7 billion, has lost 6% today. In a press conference this morning, Microsoft told investors the main reason for the deal was to ensure access to devices that will run its Windows operating system. To me, that comes across like this: "Our product isn't good enough to wow device manufacturers, so in order to sell our operating system, we'll just have to buy the device maker and force it to use Windows." Companies should strive to make their products the best in class so that customers are knocking their doors down to get them. Microsoft is going at this backwards, and as many investors probably believe today, this will end badly.
The other big deal of the day was announced by Verizon , which will buy Vodafone's 45% stake in Verizon Wireless for $130 billion. Now, following the Microsoft deal, Mr. Softy is down for the day, while Nokia is up 30%. However, Verizon and Vodafone are both down for the session. Verizon has lost 3% as investors consider how this amount of debt will affect the long-term prospects of the company. Vodafone has fallen 2.6% as investors wonder why they just gave away their cash cow. Verizon Wireless was a massive part of Vodafone, and while Vodafone will receive $130 billion in compensation for the business, it will no longer have that unit to rely on for its consistent and huge profits.
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The article Big M&A Deal-Makers Drag on the Dow originally appeared on Fool.com.Fool contributor Matt Thalman owns shares of Microsoft. Check back Monday through Friday as Matt explains what caused the Dow's winners and losers of the day, and every Saturday for a weekly recap. Follow Matt on Twitter @mthalman5513. 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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