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Members Weigh In on High M&A Activity and the Market

This week’s Sentiment Survey special question asked AAII members what they think about this year’s relatively high level of merger and acquisition (M&A) activity. Responses varied. The largest group of respondents (17%) said the elevated level of activity was a reflection of low interest rates and an attempt to close to deals before rates rise. About 13% of respondents described the deal-making activity as a positive for the market, with an additional 5% saying the mergers reflected improved economic and market conditions. A nearly equal number of respondents said this year’s jump in M&A activity is a sign of a market top, is concerning, or that corporations are sitting on too much cash (8% for each group). Many of those who thought corporations are sitting on too much cash wanted more money returned to shareholders instead. More than 11% of respondents said they do not have an opinion or haven’t given much thought to the higher level of deal-making.

Here is a sampling of the responses:

  • “Interest rates remain at historical lows, which makes now a good time to finance acquisitions.”
  • “It indicates that stocks may not be overvalued at still low interest rates.”
  • “A lack of profitable opportunities is causing firms to consolidate and seek enhanced profitability.”
  • “Companies have too much cash…they should buy back stock or declare a special dividend.”
  • “I think companies are taking advantage of cheap money because they know it won’t last much longer.”
  • “More or less expected…I think the end results could be detrimental to the acquiring company.”
 

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