The Deal That Will Remake U.S. Markets

After a buoyant start to the week, stocks ended on a low note today, as the Dow Jones Industrial Average (DJINDICES: ^DJI  ) and the broader S&P 500 (SNPINDEX: ^GSPC  ) both fell by 0.9%. All 10 S&P 500 sectors retreated on Friday, lending weight to the notion that investors were heavily focused on the loss of momentum in the "fiscal cliff" negotiations over the last couple of days. With 10 days to run before the Jan. 1st deadline, investors are having to come to terms with the increasing likelihood that lawmakers will not reach an agreement by year-end.

The macro view
Despite the focus on the fiscal cliff, I think it's possible that the U.S. economy will surprise positively next year. To be sure, not all headwinds have been eliminated: Household balance sheets still require repair, and a dysfunctional polity will continue to plague the investment landscape for corporates. Nonetheless, there are positive factors that will act as a counterweight: The wild cards of cheaper energy from shale gas extraction and a recovery in housing may not be fully discounted in current forecasts. Yesterday, the Commerce Department revised third-quarter GDP growth to 3.1%, up from 2.7% (and just 1% two months ago.) With any luck, that is a good augury of things to come in the new year.

The deal that will remake U.S. markets
For someone who has been following the financial exchange industry for several years, IntercontinentalExchange's (NYSE: ICE  ) offer to acquire NYSE Euronext (UNKNOWN: NYX.DL  ) is a dramatic illustration of the seismic shifts that have transformed the industry over the past decade or so. Five years ago, it would have been impossible for me to imagine an upstart commodities exchange bidding for the owner of Big Board -- the cradle of U.S. shareholder capitalism. However, with the rise of electronic trading and the fragmentation of liquidity, the influence of traditional exchanges has waned, as they gave up ground to smaller but nimbler competitors. It's also a stark reminder that even seemingly impregnable franchises are vulnerable to technology and regulatory change -- and their decline can occur much more quickly than one expects.

Wells Fargo is an oligopoly player in the top-heavy U.S. banking industry, but it has low technology risk and is managed for long-term success. Wells Fargo's dedication to solid, conservative banking helped it vastly outperform its peers during the financial meltdown. Today, Wells is the same great bank as ever, but with its stock trading at a premium to the rest of the industry, is there still room to buy, or is it time to cash in your gains? To help figure out whether Wells Fargo is a buy today, I invite you to download our premium research report from one of The Motley Fool's top banking analysts. Click here now for instant access to this in-depth take on Wells Fargo.


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Related Tickers

8/29/2014 4:00 PM
ICE $189.00 Up +0.31 +0.16%
IntercontinentalEx… CAPS Rating: *****
NYX.DL $0.00 Down +0.00 +0.00%
NYSE Euronext CAPS Rating: *****

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