Traders' Insight: January and February M&A Hits Lowest Level Since 2020, Will March Pick Up?

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Excerpt:

There were high hopes for a pickup in M&A activity heading into the new year, after 2023 hit an all-time low for the decade. However, with only three weeks left in the first quarter, it doesn’t look like improvement is on its way just yet.

High Interest Rates Still a Headwind

High interest rates continue to impact dealmaking, making it more expensive for companies and private equity firms to raise financing. Late last year there was hope that the March 20 FOMC meeting would bring the first cut in interest rates in four years. Since then, however, Federal Reserve Chairman Jerome Powell and several Fed presidents have made clear that investors should expect later and fewer cuts in 2024. Currently the CME Group’s FedWatch tool only has a 3% probability of a rate cut at the March 20 meeting, with that probability increasing for meetings in the second half of the year.

Another thing that hampered dealmaking was the economic uncertainty felt last year, exacerbated by pockets of market volatility in certain quarters. Those factors made it difficult for buyers and sellers to agree on terms. However, there is evidence that corporate uncertainty may be dissipating. Our Late Earnings Report Index (LERI​) which tracks outlier earnings dates, an indicator of corporate uncertainty, fell to its lowest level in nearly 2 years. A low reading suggests that US companies are markedly more confident than they were in 2022 or 2023. That could bode well for dealmaking as the year continues.