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MARKET OPTIMISM:

Posted by carl on March 8, 2010 · Leave a Comment 

Market OptimismWe have all heard the old adage that says that bad news comes in threes. Well recent reports from Wall Street suggest that companies are generating three trends simultaneously that offer bright signs about their health and optimism for the future.

So while economic data seems to go from good news to bad each week, investors are focusing on encouraging clues from companies that are busily boosting their dividends, buying back their stock and heating up merger-and-acquisition activity.

•Recovering dividends. February was the best month for dividends in two years with 47 companies in the Standard & Poor’s 500 index either boosting or starting to pay a dividend. The trend continued Wednesday when General Dynamics boosted its quarterly dividend by 10.5%.

•Rising buybacks. Stock buybacks are expected to be 37% higher in the fourth quarter compared with the third quarter of 2009.

•Increasing M&A activity. Although the record for companies successfully buying other firms is spotty, an increase in M&A demonstrates confidence in a recovering economy. The number of U.S. deals is up 13% this year to 1,579 and the dollar value of deals targeting U.S. companies is up 46% to $144 billion.

While these events appear bullish for the market sentiment, there are contributing factors that may diminish their market effect. Although more companies are increasing their dividends, the dollar value of the payments is still down 15% this year from last year and won’t match 2008 levels until 2012. Buybacks have been mainly soaking up extra shares created by giving employees stock options and they’re still down 66% from the fourth quarter of 2007. And the dollar value of all U.S. M&A deals is down 13% this year vs. the same period last year.

These factors make some investors worry the seemingly good news could be fleeting if the economy can’t sustain itself without government help. However, I am of the opinion that there is no better way than dividends and buybacks to prove to everyone that optimism is returning to the markets.

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Filed under Carl's Tips, Financial News · Tagged with Carl Christie, trading tips

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