The acquisitions of Precision Cast Parts (PCP) and Broadcom (BRCM) were completed on Friday and that put $54 billion in cash back into investor accounts. Funds were frantic at the close to reinvest those funds into anything causing a $4 billion market on close imbalance in buy orders on the NYSE.
Precision Cast Parts was acquired by Berkshire Hathaway for $37.5 billion. The notice of the completion date was sent out on Tuesday and fund managers and traders expecting money in their accounts on Monday went on a spending spree on Friday.
Broadcom was acquired by Avago and that put another $17 billion in cash into portfolio managers accounts. Another $1.4 billion in Broadcom debt will be retired with payment on Tuesday.
With the shares still trading on Friday, the actual cash settlement will be next week. We can correctly surmise that all $54.5 billion did not hit the market on Friday. The market went up on anticipation of those funds hitting accounts rather than it actually happening. This means we could have some significant follow through next week when everyone begins to put that money back to work.
The Friday surge lifted the S&P-500 to 1,940 and just under critical resistance at 1,950. That will be the key level to watch for this week. A surge over 1,950 targets 1,990 as the next major resistance level.
The biggest challenge for early next week will be oil prices. The headlines are pretty negative this weekend suggesting Russia and OPEC are not going to be agreeing on anything in the near future and crude prices are on the verge of falling below $33 again on their way back to $30 or lower.
As oil goes, so goes the market. A drop back below $32 could be the next nail in the coffin for the equity markets unless the S&P picks this week to disconnect from the correlation. Having $54 billion return to equities is a mighty big disconnect event.
The ISM Manufacturing report on Monday cold also upset the delicate market balance if it comes in much below the 48.5 expectations. This will be the third consecutive month in contraction and a warning of economic problems.
The employment reports later in the week will also be hurdles. As long as they are both over 200,000 they are in the Goldilocks zone of not too hot and not too cold. Over 250,000 would be very doubtful given the seasonal adjustments.
Futures are only slightly negative on Sunday evening and the Asian markets are also only slightly negative. Chinese traders have to make plans and position themselves ahead of the week long market holiday that starts on the 8th. That could force the Shanghai index lower and possibly roil the U.S. markets as well.
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