Marc Pado Comments: In Jobless Recovery, Why Is Market Hot?

March 12, 2010, SmartMoney

Stocks in Asia closed mixed; US Futures were higher.

So far so good this week – the major averages were ahead for the week going into Friday, and there seems to be a spring in the market’s step. The employment picture hasn’t exactly cleaned up and weekly data continue to be a mixed bag. So where is the energy coming from? One strategist points to M&A fever and some “what ifs” in financials in particular.

“The banking merger speculation started with Barclays, sending ripples throughout the mid-sized banks,” writes Marc Pado, chief market strategist at Cantor Fitzgerald. To put it simply, M & A activity changes the playing field, he says. “The focus on bad debts and mortgages, TARP repayments, bonuses, credit card losses, loan loss reserves, and write-downs fades when slapped with the ‘what if’ valuation if being purchased.” It has been a “stunning and relentless” rally, says Pado. But M&A is only a recent part of the picture. “What we have to remember is that the banks did not get here on M & A rumors,” he says. “That speculation is just starting.”

Although talk has been centered on financials recently, there’s also been activity in Basic Materials and Energy – and some market observers have noticed viral qualities. “Now there is talk of more M&A possibilities in these two sectors,” says Pado. “Yesterday, the enthusiasm started to spread from biotech to health care, hotels, and technology. The game has changed…”

Others agree. “The question investors will likely ask is, ‘Who's next?’” wrote BMO analysts, on news that Schlumberger (SLB) was buying peer oil services company Smith International (SII) in a $12.6 billion deal earlier this year.