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Pre-Market Rally Continues, "Merger Monday" Returns

Monday, June 10, 2019

Pre-market futures are up again early Monday, following the strongest trading week for the major indexes all year so far. What looks to keep the rally going is President Trump’s cancelling of an announced 5% tariff slapped on all imports coming from Mexico. He did so via tweet late Friday, and claimed victory over our neighbor to the south on trade issues conflated with immigration concerns.

Trump kept options open to put the 5% tariffs back on, should he be unsatisfied with the amount of undocumented immigrants crossing into the U.S. from the Mexican border. As of now, market indexes continue to look on the bright side: +130 points on the Dow, Nasdaq +40 and +14 on the S&P 500.

Part of this positive sentiment is also in regard to underperfoming jobs numbers last week: 27K new private-sector jobs were reported by ADP ADP on Wednesday and a 75K headline on the U.S. government’s BLS non-farm payrolls. Each was more than 100K off analyst estimates. Call this the “bad news is good news” scenario.

Why? Because a slowing labor market — which over the past several years has become synonymous with a robust economy overall — raises the likelihood of a Federal Reserve rate cut (at least one) in calendar 2019. This would mark the first relief on interest rates since before the Great Recession more than a decade ago. This would help keep loan rates cheaper for longer, and provide an additional boost to U.S.-based businesses.

Whether it would truly be necessary to cut rates from the non-exorbitant 2.5% current Fed funds rate is another matter. Earlier, the Fed had indicated it saw the neutral rate at 3%, and the monetary policy body is still a half-point away from that. And jobs numbers aren’t really falling off a cliff: average the past 3 months of both ADP and BLS data, and we see roughly 150K new jobs created per month — more than enough to keep the labor market growing.

United Technologies to Merge with Raytheon

Filed under “Merger Monday,” defense and construction conglomerate United Technologies UTX will reportedly merge with Raytheon Company RTN for $74 billion in an all-stock “merger of equals.” UTX shareholders will own 57% of the new entity, to be dubbed Raytheon Technologies, while RTN stockholders will receive 43%.

Raytheon CEO Tim Kennedy will become Chairman of the Board, while UTX CEO Greg Hayes will remain CEO of the combined defense major. For early-market investors, both sides like this deal: RTN shares are up 7% ahead of the opening bell while UTX shares are up 3%.

Mark Vickery
Senior Editor

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