Welcome to Survivor, Stock Market Edition.
Major U.S. stock benchmarks plunged far enough for the recent market rout to be labeled a correction, with both the Dow Jones Industrial Average and the Standard & Poor's 500 Index at times flirting with their worst weekly performance since 2008. The tailspin was fueled by concerns about inflation and the pace of interest-rate increases, as well as an unwinding of bets against market volatility. Whatever the reasons for the drop, it's been ugly.
But amid the sea of red caused by this slump — which we define as starting a week ago, on Feb. 2 – there were a few S&P 500 companies that actually managed to rise. Here's the (admittedly short) list of these winners, as of 2 p.m. New York time on Friday:
What can we make of this? A few themes emerge.
First, M&A. TripAdvisor Inc. was set to finish the week a winner thanks to the appointment of venture capitalist Jay Hoag to its board, which fueled speculation of a takeover. You can read more about why a purchase of the company by Priceline Group Inc. would make sense here and ways TripAdvisor can ease a deal here. Likewise, Envision Healthcare Corp., the beleaguered provider of health-care services, is up modestly amid updates on its efforts to sell itself.
Reinsurance company XL Group Ltd. soared after Bloomberg News reported that Allianz SE is interested in buying it. That deal news also helped bump up shares of Everest Re Group Ltd. as investors speculated the pace of takeovers in the reinsurance industry would accelerate. A blitz of natural disasters and growing competition has made some companies bargains. Everest also fits into our second theme: earnings.
Everest reported better-than-expected fourth quarter results on Feb. 5, sparking a 7.5 percent gain the next day and prompting several analysts to raise their price targets. Tapestry Inc., the owner of the Coach and Kate Spade brands, and cosmetics seller Coty Inc. also surprised investors with positive earnings news this week. Tapestry raised its full-year profit forecast thanks to a strong holiday season for Coach and a lower tax rate after the recently passed U.S. legislation.
Barbie-maker Mattel Inc. had ugly numbers, but shareholders took that as a sign new CEO Margo Georgiadis is doing the right things — cutting product lines and reducing bloated inventories — to get the company back on track. Hasbro Inc. seems to be taking the toy industry's challenges in stride as well. (And P.S., they're rumored as merger partners.)
What does this all mean? Well for one, we can conclude that M&A isn't going anywhere — yet. Most of these deals are still just speculation for now, but the fact that buyers are still exploring purchases, particularly where valuations have been depressed like in reinsurance, is a sign that activity may continue even amid the volatility. The good earnings news is a reminder that the underlying U.S. economy is doing rather well and that this correction doesn't herald a looming financial crisis.
So try to focus on the positives. And tune in next week to see if your favorite survivors are still hanging on.