Tech Stocks Rise Again As More Than $50 Billion In Deals Take Hold
The interplay between stocks and recently spiking Treasury yields continues Monday, with high-flying tech stocks like Tesla jumping as rates take a breather—all while a rush of newly announced mergers and acquisitions move the market.
Shortly after the market open, the Dow Jones Industrial Average, which ticked down 0.5% last week despite nabbing a record Wednesday, fell 48 points, or 0.2%, while the S&P 500 added back 0.1%, and the tech-heavy Nasdaq surged 0.7%.
Heading up gains in the S&P, shares of Kansas City Southern are soaring 17% after announcing Sunday it will be acquired by fellow freight company Canadian Pacific in a $29 billion deal that includes the assumption of Kansas City’s $3.8 billion in debt outstanding; the combined company will oversee the first rail network connecting the United States, Canada and Mexico.
More than $50 billion in mergers and acquisitions have been announced since Sunday morning, with TikTok parent ByteDance saying it will buy Shanghai-based Mooton Technology for $4 billion, and Australian gaming company Crown Resorts nabbing a bid from private equity giant Blackstone for more than $6 billion.
Meanwhile, California-based Synnex is surging 12% after the firm announced it will buy fellow IT company Tech Data from private equity giant Apollo Global for approximately $7.2 billion, including net debt.
As yields on the ten-year Treasury tick down about 3 basis points, big-tech stocks, like Tesla (up 4%), are rising, and cyclical stocks are taking a hit: cruise liners Carnival, Norwegian and Royal Caribbean are down as much as 3%, while Bank of America and Delta Air Lines fall about 1%.
Rising Treasury yields have rattled the market in recent weeks, with technology stocks taking the brunt of the hit as investors rotate away from high-flying names and into companies that were hit hard by the pandemic but are now expected to recover. Though it’s up Monday, the Nasdaq is down 6% from a February high, while the S&P and Dow are still nabbing new records.
“In the short term, technology stocks may underperform, but we are bullish on the sector over longer time frames,” Richard Saperstein, the chief investment officer of New York City-based Treasury Partners, said Monday. “After the reopening exuberance fades and interest rates level off, investors will rotate back into large-cap technology stocks with strong free cash flow, recurring revenues and increasing user penetration.”
What We Don’t Know
How much yields may raise. “If rates rise due to structural inflation, which isn’t our base case, the Federal Reserve would likely pull the punch bowl, creating a landscape that would become a threat to equities,” Saperstein says, adding that he thinks the ten-year Treasury yield should remain below 2% this year and 2.5% next year—levels that wouldn’t likely compromise stock prices.
What To Watch For
GameStop earnings Tuesday afternoon. It’s the first quarterly report for the Grapevine, Texas-based firm since Reddit-trading mania pushed prices to meteoric highs in January. The stock is up 2% Monday and nearly 1,100% this year.
Canadian Pacific To Buy Kansas City Southern In $25 Billion Deal Creating First Rail Network Spanning US, Mexico And Canada (Fintech Zoom)
ByteDance says its video games unit will acquire Mooton Technology (Reuters)