Tuesday’s Mid-Day Movers: 3 Stories Driving Markets

The U.S. equity markets woke up on Tuesday morning, fresh from a long weekend, and immediately struck out for positive territory. By afternoon trading, the S&P 500 and Dow Jones hit fresh five-year highs, fueled by M&A buzz and positive expectations for a battery of economic indicators due to be released this week. The Dow hit a high of 14,044.48, and the S&P 500 hit a high of 1,528.09.

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At 12:20 p.m.: DJIA: +0.31%S&P 500: +0.55%NASDAQ: +0.27%.Money Man

1) Merger and acquisitions activity has been a key factor in the broad market rally over the past few weeks. Highlighted by Warren Buffett’s acquisition of Heinz, the American-Airlines-US Airway’s merger, and the buzz on Tuesday that OfficeMax and Office Depot may unite, speculation is building that 2013 may bring with it a boom in M&A activity.

Such a boom could be taken to mean that businesses finally feel like recessionary headwinds have died down enough to safely pursue growth opportunities. M&A activity declined sharply in the wake of the recession as businesses focused more on survival and less on growth.

Injured Piggy Bank WIth Crutches2) Barring total disaster, the U.S. economy will not fall back into recession, according to Jan Hatzius, top economist at Goldman Sachs. In a recently-circulated research note, Hatzius argues that 2013 will be a year of modest growth, but it will be followed by substantial economic acceleration in 2014. The potential for growth in 2014 is highlighted by signs of momentum in initial jobless claims, retail and auto sales, and manufacturing surveys, but constraints like increased taxes and spending cuts will limit growth in the short term.

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Hatzius highlights the current political environment as an economic risk, but also points out that the threat of federal default has largely been removed… (Read more.)

3) U.S. economic confidence has grown right along side the markets, and the Gallup’s Economic Confidence Index is currently sitting just 3 points shy of its own five-year high of -8. But this relatively high level of confidence still reflects underlying concerns. According to Gallup, 44 percent of Americans think the economy is getting better, while 51 percent say it is getting worse.

Gallup commented: “While there are certainly positive signs for the U.S. economy, such as a strong stock market and indications of a recovering housing market, few would deny that it remains in a fragile state. Experts generally expect economic growth to be modest this year, with potential threats to the economy from scheduled large-scale cuts in government spending and high gas prices.”

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