The Daily Dose: Spooky, No?

 | May 08, 2014 | 10:00 AM EDT
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Janet Yellen strolled onto the stage yesterday and showed the financial community.

Reporters will have to stop promoting their stories on Twitter and Facebook (each click is critical in attaining a year-end bonus, trust me on this) for a little bit and work much harder to trip her up at the next post FOMC decision conference (June 18).

That's actually good for the market because there will be greater confidence in her musings that the Fed will be a Superfriend, probably until 2018. But with that confidence comes heightened, even swift, risk for the market when the Fed does decide to alter course verbally and then actually.

What's ultimately spooky -- other than the Nasdaq selling off as rates and the dollar swoon and growth is incrementally improving -- is that there is one key reason to be encouraged: M&A activity in dollars, including small deals, has risen a big fat 50% in 2014 compared with 2013.

Moreover, I would speculate that the deals between most companies are healthier (stripping out these absurd stock-for-stock transactions in tech land).  In 2006, for example, two-thirds of acquiring companies paid for their targets with borrowed money. Now, combined companies enter their marriage with generally good balance sheets and could begin to drive shareholder value quicker. Believe me, value is fueled not only by removing excess in manufacturing and back-office functions, it's also done through joined brainpower and developing new products and services. That, theoretically, would spur added combinations in a given sector as competitors fear losing market share, which crushes enterprise value through margin pressure.

I have been a touch more optimistic on the market (let's say the past two weeks or so). I like seeing successful companies selling stuff people want and need. If the market were to go to hell in a hand basket, it would be function of winning companies failing to live up their own guidance. But looking at Electronic Arts (EA), Activision Blizzard (ATVI), Under Armour (UA) and railroads, the strengthening fundamentals are obvious and supportive of stocks, not feeding into the chorus of doomsday newsletter writers trying to lure in subs.

The Flight to Food

Stop the madness out there with this refrain that he Nasdaq is cratering as institutional investors prepare for the Alibaba IPO. If anyone e-mails me with that question again this week I am returning their money. The Nasdaq is being sold, in my view, as the fundamentals of the buzziest names, including Facebook (FB), Twitter (TWTR) and LinkedIn (LNKD), are not justifying the crazy valuations that were built in months earlier. Should institutional money be prepping to gobble up the Alibaba IPO, then money wouldn't necessarily be finding its way into consumer staples. Look at PepsiCo (PEP), Coca-Cola (KO) and Hershey (HSY). These names have ripped this week despite poor quarters (except for Pepsi, solid quarter).

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