Merger talk is in the air and thoughts of corporate consolidation are likely to occupy investors' minds in the week ahead, as the earnings season winds down and traders look for fresh reasons to push the market higher.
Cable operator Comcast Corp's unsolicited US$50 billion takeover bid for media giant Walt Disney Co, a deal that would create the world's largest media company, stirred up speculation about a comeback in dealmaking and put Wall Street on watch for the next mega-marriage.
Unexpectedly strong quarterly earnings reports and heavy hints from Federal Reserve Chairman Alan Greenspan that interest rates are likely to remain low for some time to come have underpinned investor sentiment. But after the market's substantial climb over the past two months, concerns have mounted that most of this good news is already factored into current stock prices.
"You've gotten to a point now where it's hard to squeeze out much better earnings without a much stronger economy," said Rick Meckler, president of investment firm LibertyView Asset Management.
Merger and acquisition activity, he said, may help keep investors' interest in buying stocks piqued.
"People will be starting to look at who else can buy a competitor and grow from that."
In addition to the Disney deal, the world's top wireless operator, Vodafone Group Plc, and US rival Cingular have squared off for a US$30 billion-plus bidding war to gain control of AT&T Wireless ahead of a late Friday deadline.
That came on the heels of Bank of America Corp's bid for FleetBoston Financial Corp. late last month.
More deals of this kind mean corporate managements are more comfortable with their own business operations and feel that their companies' shares are fairly valued, said Jack Caffrey, equity strategist at J.P. Morgan Private Bank.
"It's indicative of a healthier overall financial and operating environment," Caffrey said. "That can translate into managements' willingness to spend more money on capital and, ultimately, spend more on labor."
While corporate America is expected to pick up the spending baton from consumers, whose shopping habits helped ease the pain of the latest economic downturn, some economists worry that sluggish employment growth could leave consumers with empty pockets.
On Friday, a surprisingly weak report on consumer sentiment from the University of Michigan helped send stocks into negative territory.
For that reason, weekly jobless claims figures will garner a bit of attention next week. Economists polled by Reuters estimate that about 353,000 Americans lined up for first-time unemployment benefits in the week ended Feb. 14, down from 363,000 in the previous week. The figures are due Thursday.
Industrial production and capacity utilization data for January are on Tuesday's economic calendar.
Reports on consumer and producer-level prices in January will likely get a yawn unless they diverge widely from expectations, analysts said, since Greenspan's comments reassured the financial markets that the Fed isn't ready to take back some of the stimulus that has helped the economy surge to its strongest levels in 20 years.
Technology companies and retailers stand out amid next week's corporate earnings reports. Both the world's biggest retailer, Wal-Mart Stores Inc, and the second-largest US discounter, Target Corp, are scheduled to issue their quarterly scorecards.
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