If you've been missing economic data or meaning behind the S&P 500's (SNPINDEX:^GSPC) recent movements, then today granted your wish for an abundance of data.
In the plus column, the Producers Price Index for June came in with a higher-than-expected increase of 0.4%. Although an increase this high would normally be worrisome, as it could spell higher costs for businesses and eventually lead to inflation, it also follows a 0.2% decline in May. Deflation is a far scarier beast than inflation, so seeing prices rise would imply that demand for goods remains strong.
In addition, capacity utilization remained unchanged in June at 79.1%. This would imply that manufacturers and factories are still operating at efficient levels and, once again, would insinuate that the U.S. economy is still on the path to expansion.
Even housing partially contributed in the positive column, with the National Association of Homebuilders Market Index rising to a reading of 53 in July from just 49 in June. Anything over 50 represents optimism, and this was a clear three points ahead of the consensus estimate on the Street. With lending rates near historic lows once again, and the uncertainties associated with the eventual end of QE3 clearing up, homebuilders are able to take a sturdier stance on where they see their companies headed over the near-term.
However, we also saw disappointing data as it relates to industrial production and the weekly loan origination readings from the Mortgage Bankers Association.
Industrial production for June expanded by just 0.2% versus an expectation from economists of 0.4% expansion. This was also down notably from the 0.5% expansion delivered in May. Slowing industrial production could signify a slowdown in demand, although a lack of a drop in capacity utilization likely gives this thesis a reprieve for another month.
The Mortgage Bankers Association also noted that loan originations, including refinancing and new loan origination, dropped 3.6% this past week after gaining 1.9% the prior week. It's extremely disappointing how few consumers are taking advantage of these historically low lending rates and could give investors pause about investing in the homebuilding sector if rates are indeed scheduled to start rising by early or mid-2015.
As if this smorgasbord of data wasn't enough, we also had additional merger and acquisition news driving the S&P 500 to the upside, as well as positive earnings data. We'll touch on a few of those stories in a moment.
By day's end the S&P 500 had lunged higher by 8.29 points (0.42%) to close at 1,981.57, pushing it well within reach of a new all-time high, once again.
Leading all companies to the upside today was media and entertainment giant Time Warner (NYSE:TWX) which jumped 17.1% after confirming that Twenty-First Century Fox (NASDAQ:FOXA) had made a bid to acquire the company for $32.42 in cash and 1.531 shares of Twenty-First Century Fox for each share of Time Warner. Ultimately, the deal would have valued Time Warner at close to $80 billion. However, Time Warner's board rejected the unsolicited offer as not in the best interests of existing shareholders and believes its existing strategy will drive better long-term gains for investors.
As for me, I believe it'd be foolish (small "f") to assume that Rupert Murdoch and Twenty-First Century Fox are merely going to walk away from this rejection and move on. More than likely we're going to see Murdoch and Twenty-First Century Fox return with a slightly beefier bid, perhaps enriched with a larger cash component, in an effort to combine their media clout in order to save on costs and obtain better pricing power with advertisers and other broadcasting clientele. While I wouldn't suggest chasing either company following this rejection, I would be inclined to keep a close eye on any further developments.
Chipmaker Intel (NASDAQ:INTC) blasted to the upside today by 9.3%, adding nearly $15 billion in market value, after it reported better-than-expected second-quarter results and offered a rosier outlook than many had expected.
For the quarter, Intel reported revenue of $13.83 billion, up 8% from the year-ago period, with gross margin of 64.5% and adjusted EPS of $0.55. Comparatively speaking, Wall Street was only expecting $13.72 billion in revenue and $0.53 in EPS -- and this was including the company's boosted guidance from five weeks ago! Looking ahead, Intel now sees revenue increasing about 5% to $55.3 billion and expects gross margins to come in around 63%. The company's board also announced its intent to lower its cash reserves by returning more cash to shareholders through share repurchases. Intel officially announced an increase of $20 billion to its existing buyback agreement with the expectation that it'll repurchase approximately $4 billion worth of its shares in the third quarter.
All told, this was a blowout quarter for Intel and it signals that all facets of its business are on track. Businesses are keeping its PC segment strong, enterprises are gobbling up its data center hardware, and it's making solid inroads into next-generation mobile and Internet-based technologies. Intel is a basic-needs company if you're going to be utilizing almost any technological device, and it remains, even after today's pop, a solid long-term play.
Lastly, the one deal that did go down today was the announcement that casino software and slot machine developer International Game Technology (NYSE:IGT) is being purchased for $4.7 billion, excluded debt, by Italty's Gtech. Under the terms of the deal, which sent IGT shares shooting higher by 9.2%, IGT shareholders will receive $13.69 in cash and 0.1819 shares of the new company for each share they currently own. The actual value of the deal works out to $18.25 per share, meaning there's a potential arbitrage opportunity here with IGT shares closing slightly below $17 in today's trading session.
I believe Gtech got a fantastic deal on IGT even if IGT's latest results haven't been that exciting. First, IGT is in a business niche where slot machines are always needing to be serviced and upgraded. There is no replacement cycle because the cycle never stops if casinos hope to keep customers walking through the door. This means that even though orders have been down, the price charged per machine has been on the rise.
Also, IGT holds one of only two online gaming licenses granted in the United States. Although online gaming isn't legal at the moment, if it ever becomes legal Gtech will be in prime position to clean up! I believe IGT could have received more, but all in all IGT shareholders should be happy with the premium considering how poor IGTs top-line growth has been over the past year.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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