Thursday Morning Reads

Bonds tumble, M&A jumps in Q1

The broader market and cyclicals outperformed tech shares in Q1, while bond prices sank and deals had their biggest quarterly performance in 20 years.

The S&P (SP500, SPY) is up 5.8% year to date, outpacing the Nasdaq (COMP, QQQ), which rose 2.8%. The Dow (DJI, DIA), with its cyclical tilt to financials and industrials and its price-weighted calculation, rose 7.8% through the first three months.

"Given the carnage we saw in some areas of the market recently, it may not seem that way but March was a very positive month for US equities across different styles and sectors," Bespoke Investment Group writes in a note. "At the index level, the Dow led the way surging nearly 7%, but the S&P 500 was also very strong, gaining more than 4.5%. Large Cap Tech was an area of relative weakness, but even the Nasdaq 100 was up 1.71% (just about all of which came on the last trading day of the month)."

"Continuing a trend that has been in place all year, value stocks left growth in the dust, more than doubling the gains of growth stocks during March," Bespoke adds.

In its review of Q1, DataTrek Research says the outsize moves seen in volatility in previous years are returning to normal at a fairly brisk pace. "Lots of liquidity into the US economy and financial system has helped corporate earnings rebound and valuations stabilize quickly," DataTrek's Jessica Rabe writes. "That, along with a solution to the crisis issue (i.e. vaccines) and lower equity sector correlations, have dampened volatility faster than prior post-crisis periods."

Yields take off: One of the big weights on technology and other high-valuation stocks has been the rise in U.S. Treasury yields (TBT, TLT). Treasury prices sank the most since 1980, when the fed funds rate surged in an attempt to curb inflation. The Bloomberg Barclays U.S. Treasury Index is off 4.25% over the past three months. Inflation expectations are a big reason for the rise in yields, with the 10-year breakeven rate approaching 2.4, levels not since in nearly eight years.

"I think yields continue to go up," Bob Parker, senior adviser at Quilvest Wealth Management says.

M&A booms: Mergers and acquisition enjoyed their best performance in two decades in Q1 at $1.1T. A big boon to that activity is SPACs putting money raised to use. The amount reported of public companies buying private companies rose to $435B in Q1, up 86% from the year-ago period, according to a Bloomberg estimate. North America led dealmaking with $644B, followed by Europe at $286B and Asia Pacific at $261B.

J&J vaccine snafu

Human error led to the accidental mixing of vaccines at an Emergent BioSolutions (NYSE:EBS) plant in Baltimore, rendering 15M doses of Johnson & Johnson's (NYSE:JNJ) COVID-19 vaccine useless, The New York Times reports. (66 comments)

SPACs set to take off in Asia

With Asia in third place in regional M&A, a jumpstart of SPAC activity could lead to more deals in the area.

A flurry of investment is set to bring the red-hot trend of "blank-check" entities going public in order to find a private merger partner to Asia, where it's played a small part so far. The region's merger/acquisition activity is heating up, and one banker notes the only issue may be running out of merger candidates with so many SPACs coming on board to invest. (2 comments)

Japan’s Kioxia in the deal crosshairs

Also in the M&A space, Micron (NASDAQ:MU) and Western Digital (NASDAQ:WDC) are reportedly considering making separate bids for Japanese chip maker Kioxia Holdings that could value the company at $30B. A deal could be finalized this spring, though it's not guaranteed, according to a WSJ report. (33 comments)

TSMC to invest $100B

In more news on chips, Taiwan Semiconductor (NYSE:TSM) says it plans to spend $100B over the next three years to expand its chip fabrication capacity. TSMC, whose customers include Apple and Qualcomm, already had indicated plans to spend $25B-$28B this year to develop and produce advanced chips. (10 comments)

Infrastructure plan also calls for chip spending

President Biden's $2T American Jobs Plan unveiled Wednesday asks Congress to approve a $50B investment in domestic semiconductor manufacturing and research. Last September, a study from lobbying group Semiconductor Industry Association and Boston Consulting Group said that the United States needed to spend that amount on semi manufacturing to increase its global market share above the current 12%. (117 comments)

Apple goes ‘grid scale’ in solar

Apple (NASDAQ:AAPL) says it will build a "grid scale" battery-based renewable energy storage facility in California near a solar farm that already provides daytime energy needs for its headquarters in Cupertino. The project will store 240 MWh of energy, or enough to power more than 7K homes for one day. (55 comments)

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