MARKET SNAPSHOT: U.S. Stock Market Could Bask In More M&A

By Kate Gibson

The U.S. stock market's celebration of a renewed burst of M&A activity proved short-lived Tuesday even as some questioned the viability of Xerox Corp.'s $6.4 billion bid for Affiliated Computer Services.

Monday's double-digit drop in the would-be acquirer's stock was an early indication the deal as proposed may not go through, said Art Hogan, chief market strategist at Jefferies & Co.

Yet, the deal's possible demise is not necessarily such a bad thing, Hogan said.

"The good news is there is ongoing consolidation in computer services, and you can make an argument this opens the door for another bidder at a higher valuation, that's good for the broader market," he said.

The recent spurt of M&A activity marks the beginning of a cycle that should intensify as "tech companies strive to deepen and broaden their product offerings," said Hogan.

The biggest players in technology in terms of market capitalization historically have high levels of cash on their balance sheets, said Hogan. He pointed to Microsoft Corp. (MSFT), Oracle Corp. (ORCL), Cisco Systems Inc. (CSCO) and IBM (IBM) as among likely buyers of other companies.

"You don't have to go far to find a pretty big pile of cash for acquisitions," said Hogan.

Xerox Corp. (XRX) shares on Tuesday rose 3%, taking back less than a third of the market valuation lost in the prior session's near-15% slide.

Elsewhere in the IT sector, shares of Unisys Corp. (UIS) gained 1%, continuing Monday's rise of almost 15%, a surge Hogan attributed to speculation it took might be targeted for acquisition.

On Wall Street, the major indexes lost their early footing after an index of consumer confidence fell unexpectedly, with energy and information technology shares fronting the decline.

The Dow Jones Industrial Average (DJI) fell 28.79 points, or 0.3%, to 9,760.57. The S&P 500 Index (SPX) declined 2.36 points, or 0.2%, to 1,060.62, while the tech-laden Nasdaq Composite Index shed 9.98 points, or 0.5%, to 2,120.76.