What's going on?

Last week saw further potential acquisitions get announced, including AB InBev�s possible purchase of SABMiller. According to the Financial Times, this is the biggest year ever for megadeals (deals worth more than $10billion).

What does this mean?

All these deals happening could be a clue that stocks are overvalued. Previous eras of heavy deal making, like in the years leading up to 2000 and 2007, were harbingers of big market crashes. This is possibly because companies that are struggling to grow profits organically (e.g. by themselves) will buy another company in order to get an immediate boost to their earnings � the new entity, for example, might be able to lower its cost base by eliminating areas of overlap.

Why should I care?

1. This news is another sign that stock markets in developed countries, especially in the US, are quite highly valued. That means that stock prices are high relative to the amount of profits companies are making, compared to historic averages at least � and that stocks are vulnerable to a potentially large sell off.
2. However, predicting a sell off is virtually impossible. If investors think that stocks are vulnerable, they might choose to move some of their investments out of stocks and into, perhaps, safer investments (like some types of bonds). But it might make more sense just to ensure that their portfolio is appropriate for their long-term aims and that if a large sell-off does occur, that they will have money to re-invest in the stock market (for example, by not owning 100% stocks right now).