MarketView for February 19

Summary

The major equity indexes moved higher on Tuesday as this year's ongoing surge in merger activity suggested that there is value in the market even as those major indexes closed in on all-time highs.

Office Depot ended the day up 9.4 percent to $5.02 on rumors that the nation’s second largest office supplies retailer was in advanced talks to merge with smaller rival OfficeMax. OfficeMax ended the day up more than 20 percent. News of the possible merger came just days after Berkshire Hathaway and a partner agreed to acquire H.J. Heinz for $23 billion, and following a revised $20 billion takeover of Mexican brewer Grupo Modelo by Anheuser-Busch InBev.

Deal activity has helped equities resist a pullback as dips are currently looked at as buying opportunities. The S&P is up about 7 percent so far in 2013 and has climbed for the past seven weeks in its longest weekly winning streak since January 2011, though most of the weekly gains have been slim. The Dow Jones Industrial Average ended the day up 0.9 percent away from its record high while the S&P 500 was 2.2 percent off its peak.

More than $158 billion in deals has been announced so far in 2013, more than double the activity in the same period last year and accounting for 57 percent of global deal volumes, according to Thomson Reuters Deals Intelligence.

Other stocks in the office supplies sector also rose. Staples ended the day up 13.1 percent to close at $14.65 as the best performer on the S&P 500.

On the downside, health insurance stocks fell, led by a 6.4 percent drop in Humana to $73.01. The company said the government's proposed 2014 payment rates for Medicare Advantage participants were lower than expected and would hurt its profit outlook. UnitedHealth lost 1.2 percent to $56.66.

Wall Street's strong start to the year was fueled by better-than-expected corporate earnings, as well as a compromise in Washington that temporarily averted automatic spending cuts and tax hikes that are predicted to damage the economy.

The compromise on across-the-board spending cuts postponed the matter until March 1, at which point the cuts take effect. Ahead of the debate over the cuts, known as sequestration, further gains for stocks may be difficult to come by. Some investors say the debate could be the catalyst for a long anticipated sell-off after the market's recent strong run.

According to the Thomson Reuters data through Monday morning, of the 391 companies in the S&P 500 that have reported results, 70.1 percent have exceeded analysts' expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters.

Fourth-quarter earnings for S&P 500 companies have risen 5.6 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season.