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Market Rise Giving Wall Street Firms a Lift

3 August 2013 in Trading Ideas

There’s nothing like an all-time high in the stock market to make most investors feel good – and maybe nobody’s feeling better than Wall Street itself.

On Thursday, the S&P 500 crossed 1700 for the first time (yes, unadjusted for inflation) and extending a rally that has seen stocks nearly double in the past 12 months.

And, this just in: this kind of turnaround in fortune has done wonders for the companies that profit when other companies are feeling bold enough to spend money on acquisitions, or do some big-time investing of their own.

wall street motif This recent uptrend in business and investor confidence comprises the opportunity behind our new Wall Street motif, a portfolio of stocks of financial services companies tied to all things Wall Street – investment banking, mergers and acquisition activity, and asset trading.

Case in point: Just a few weeks ago, Wall Street behemoth Goldman Sachs said its second-quarter profit doubled from a year earlier, due to a strong boost from its fixed-income, currency and commodity trading. In addition, Goldman’s investment banking revenue jumped 29%.1

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Wall Street banks have also been helped by an uptick in overall mergers and acquisition activity, with the first quarter’s $542 billion of deals amounting to a 10% rise over year-ago levels.2

The market’s strength has also been a boon for private equity firms, many of which are emboldened to tap the IPO market for past buyouts. In the second quarter of 2013, 24 private equity-backed IPOs hit the Street, making it the most active quarter in nearly nine years. What’s more, there are 43 PE-backed IPO active registrations, which could raise more than $9 billion combined – and mean a tidy windfall for PE firms.3

Of course, Wall Street’s recent hot streak is no guarantee of a strong future, but investors who continue to believe there’s more heightened market activity to come may find our new motif a compelling alternative.

1Saabira Chaudhuri, “Goldman’s Net Income Doubles on Strong Trading Revenue,” WSJ.com, July 16, 2013.

2“2013 M&A Report”, WilmerHale (http://www.wilmerhale.com/uploadedFiles/WilmerHale_Shared_Content/Files/Editorial/Publication/2013-wilmerhale-ma-report.pdf)

3Ernst & Young “U.S. IPO Market Surges as Market Confidence Returns in Early 2013” March 2013 (http://www.ey.com/US/en/Newsroom/News-releases/News_U-S-IPO-Market-Surges-as-Market-Confidence-Returns-in-Early-2013)