Wall Street set to open higher on M&A, extend rally
By Chuck Mikolajczak | February 20, 2013 1:28 AM EST
U.S. stocks were poised to open modestly higher on Tuesday after the long holiday weekend, putting the S&P 500 on track to extend its seven-week winning streak on increased M&A activity and before housing market data.
The S&P 500's <.SPX> advance is the longest streak since January 2011, and the benchmark index is up 6.6 percent so far this year.
The strong start was fueled by legislators in Washington temporarily averting automatic spending cuts and tax hikes as well as by stronger-than-expected earnings and economic data. The Federal Reserve's stimulus policy has also been a major factor.
But further gains for the S&P 500 have been a struggle as investors look for new catalysts to lift the index, which hovers near five-year highs.
The compromise by lawmakers on across-the-board spending cuts, known as sequestration, only postponed the matter, and Democrats and Republicans have until March 1 to resolve differences or the cuts, which are predicted to damage the economy, will take effect.
The uptick in merger and acquisition activity, a sign of optimism about the outlook on Wall Street, has resulted in more than $158 billion in deals announced so far in 2013.
Last week, deals were reached for the acquisition of H.J. Heinz Co
"M&A is providing an enormous amount of enthusiasm in pockets and it is really a function of the cost of money, the cost of borrowing. It is a sign there is a shift going on in the economy that is very, very positive," said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.
"At the same time, if you take the M&A activity out of the picture, you will see that many on the Street are expecting a pullback.
Office Depot Inc
Economic data on tap includes the National Association of Home Builders/Wells Fargo index on housing sales for February at 10 a.m. (1500 GMT). Economists in a Reuters survey expect a reading of 48 compared with 47 in January.
Improving housing data has been cited by analysts as one of the key factors in the stock market rally.
S&P 500 futures rose 2.9 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures gained 21 points and Nasdaq 100 futures added 7.5 points.
U.S. markets were closed on Monday for the Presidents Day holiday.
Computer maker Dell
According to the Thomson Reuters data through Friday, of the 388 companies in the S&P 500 that have reported results, 69.8 percent have exceeded analysts' expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters.
Fourth-quarter earnings for S&P 500 companies are estimated to have risen 5.6 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season.
(Reporting by Chuck Mikolajczak; Editing by Chizu Nomiyama and Kenneth Barry)