|By MarketMinder editorial staff, 09/20/2006|
When companies buy each other they take equity supply off the market and pay a premium for those shares. This is good for stocks. First, if you hold demand for stocks constant and lessen overall supply the equilibrium price by definition rises (standard Economics 101). Second, M&A activity is a reflection of companies in solid financial positions with cash to spend and room to take on debt. With interest rates still at historically low levels they have an incentive to do so (all you really have to do is generate a return on your investment in excess of the cost of that debt).
Over $49 billion in deals were announced last week alone, pushing the year-to-date total to $1.4 trillion (over 27% more than the $1.1 trillion for the same period a year ago).
*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.