Stocks Drop; Jobs Report Clouds Rate Outlook

Baptist Church In Brooklyn Holds "Beyond The Dream" Job Fair
NEW YORK and RICHMOND, Va. — The latest U.S. jobs report definitively wasn’t good or bad enough to help the Federal Reserve decide whether to raise interest rates later this month, leaving the decision hanging on volatility in financial markets over the next couple of weeks.

The economy added 173,000 jobs in August, quite a bit fewer than expected. But employment growth in June and July were revised higher, wages rose more than expected in August and the jobless rate fell to a seven-year low of 5.1 percent.

With global financial markets reeling over the last two weeks over fears of a Chinese economic slowdown, the report is probably the best and last direct reading on the economy before Fed officials consider hiking rates at a Sept. 16-17 meeting.

With this jobs report … the Fed finds itself in a real uncertainty jam when it comes to a September interest rate hike.

Yet the report disappointed those looking for clarity.

“With this jobs report … the Fed finds itself in a real uncertainty jam when it comes to a September interest rate hike,” Mohamed El-Erian, chief economic adviser at Allianz, in Newport Beach, California, said in an email.

“In the run-up to its policy meeting, the Fed will pay even greater attention to global market developments.”

According to Fed policymakers gathered in Jackson Hole, Wyoming, last week, not only would the August jobs report need to be decent but market gyrations would need to dissipate for them to act.

Decency was evident in the jobless rate falling to a level many U.S. central bankers see as full strength, while growth in wages and the number of hours worked across the country suggested Americans have more money to spend.

U.S. stocks Friday fell sharply as investors weighed the chances of a Fed rate hike. Oil prices also fell.

For many, the report simply reinforced their previous views on the timing of the pending rate hike.

“I’d call this a good … employment report. It didn’t change the picture for monetary policy,” Richmond Fed President Jeffrey Lacker, who favors a prompt policy tightening, told a retailer conference in Richmond, Virginia.

Others highlighted the fact that the economy produced nearly 50,000 fewer jobs than expected in August. Still, average job growth in the last three months is 221,000, seen as enough to keep pushing the jobless rate lower.

Employment growth for the month of August in particular has a history of being initially underestimated and later revised higher by the U.S. Labor Department.

Waiting for a Rate Hike

Wall Street’s top banks still expect the Fed will raise interest rates this year, but their conviction around a September hike has decreased notably in the last month due to volatility in global markets, a Reuters poll found.

Ten of 17 banks that deal with the Fed directly said they expect a rate hike in the fourth quarter of 2015 or later. Only seven dealers expect the tightening this month compared to 13 in an early August poll.

Bets in futures markets imply investors see roughly a 20 percent chance the hike will come this month.

Fed Vice Chair Stanley Fischer said last week that there was “a pretty strong case” to tighten before the market slump, and that now, “we are still watching how it unfolds.”

While data on the broader U.S. economy has remained healthy, the U.S. central bank wants reasonable confidence that inflation will rebound in the medium term before it raises rates. The rising dollar has also held U.S. prices down.

“It’s really inflation that has been holding them back, and this [jobs report] doesn’t really give them any evidence on that front,” said Thomas Simons, money market economist at Jefferies & Co, in New York.

The Fed’s policy decision “will break down to how commodities react between now and the September meeting,” he said. “If commodities recover and stabilize then there’s a chance [of a hike]; otherwise I don’t think it’s likely to happen.”

Stocks Jump 2% as China Gains Fuel Global Rally

Financial Markets Wall Street
NEW YORK — U.S. stocks rose more than 2 percent on Tuesday, bouncing after steep losses last week and a China-fueled rebound in global equities.

Gains were broad-based and followed a three-day U.S. holiday weekend. All but one of the 10 major S&P sectors ended with gains of more than 2 percent.

Hopes for more stimulus measures from the Chinese government increased after data on Tuesday showed that China’s imports shrank far more than expected in August, falling for the 10th straight month.

Chinese stocks surged in a late rally, sparking a rebound in global equities. Late on Monday, China said it would remove a tax on dividend incomes for investors who hold stocks for more than a year in an effort to encourage longer-term investment.

We had some nice buying opportunities with the sell-off in August.

“We had some nice buying opportunities with the sell-off in August, and I think people are starting to take advantage of that and put money to work,” said Larry Peruzzi, senior equity trader at Cabrera Capital Markets in Boston.

“In China it seems like there is a willingness to continue with stimulus, so hopefully those markets will stabilize.”

The Dow Jones industrial average (^DJI)​ rose 390.3 points, or 2.4 percent, to 16,492.68, the Standard & Poor’s 500 index (^GSPC)​ gained 48.19 points, or 2.5 percent, to 1,969.41 and the Nasdaq composite (^IXIC)​ added 128.01 points, or 2.7 percent, to 4,811.93.

All three major U.S. stock indexes posted losses of at least 3 percent for last week.

Global financial markets have been rattled in recent weeks by fears that China’s slowdown could drag on already sluggish global growth, prompting some investors to bet that the U.S. central bank will delay a hike until the end of the year.

Fed Watch

A mixed report Friday on the U.S. job market for August added to investor uncertainty about whether the Federal Reserve will increase interest rates at its Sept. 16-17 meeting.

Apple (AAPL) shares gave the biggest boost to the S&P and the Nasdaq, rising 2.8 percent at $112.31, a day before the iPhone-maker is expected to unveil new offerings.

Fitbit (FIT) was up 11.2 percent at $35.46 after Morgan Stanley (MS) upgraded the stock to “overweight.”

Media General (MEG) fell 6 percent to $10.48 after it said it would buy diversified media company Meredith for about $2.34 billion to create the third-largest local TV station owner in the United States. Meredith (MDP) was up 9.9 percent at $50.47.

After the bell, Yahoo (YHOO) shares were down 3.1 percent at $29.95 after it said it was considering its options following an Internal Revenue Service denial of its request on a tax ruling related to Yahoo’s plans to exit a stake in Alibaba Group (BABA).

In addition, shares of United Continental Holdings (UAL) were down 2.8 percent at $55.90 after the bell following the company’s announcement that Chief Executive Officer Jeff Smisek had stepped down.

Advancing issues outnumbered declining ones on the NYSE by 2,439 to 644, for a 3.79-to-1 ratio on the upside; on the Nasdaq, 2,202 issues rose and 646 fell for a 3.41-to-1 ratio favoring advancers.

The benchmark S&P 500 index posted one new 52-week highs and no new lows; the Nasdaq composite recorded 46 new highs and 30 new lows.

About 6.7 billion shares changed hands on U.S. exchanges, compared with the 7.6 billion daily average for the month to date, according to data from BATS Global Markets.

Autumn Real Estate Forecast: Falling Leaves, Rising Prices

A real estate agent standing by a FOR SALE sign
NEW YORK — The U.S. real estate market, like most economic sectors, has been buffeted by the zig-zagging stock market, rising energy prices and the uncertainty over whether the Federal Reserve will raise interest rates this year, as many experts predict.

Still, the outlook for the autumn residential real estate market seems robust, according to industry analysts. “Recent stock market volatility and seasonal trends may give buyers better financial options and more time to make purchase decisions entering the fall,” says Jonathan Smoke, chief economist forRealtor.com. “August data remains positive with regard to overall housing health as both demand and supply continue to grow.” In particular, Smoke points to an 8 percent rise in domestic median home prices on a year-to-year basis (to $233,000) and shorter “time on the market” for homes (down 6 percent on a year-to-year basis, Realtor.com reports).

Smoke says buyers and sellers are both trying to find that elusive sweet spot where supply and demand merge in a way where deals are fair to everyone. “This year we [saw] inventory continue to grow in August, and while overall demand is strong, the trend in median days on market is suggesting that the market is finding more of a balance,” says Smoke. “This bodes well for would-be buyers who have been discouraged by the inability to find a home to buy this spring and summer.”

Many say that though “balance” is desirable, other sweet spots aren’t really all that sweet. “I’m seeing higher-income buyers pulling back and buying smaller, less expensive homes, and lower income buyers reaching too high and buying homes they can’t afford,” says Rick Thorpe, a Doylestown, Pennsylvania-based mortgage broker. “But I’m busy — there’s no doubt about that.”

Right now the hottest real estate markets in the nation reside largely in two states — California and Texas. The former has six of the U.S.’s “Top 10” markets (including San Francisco and San Diego), while the latter has two (Dallas-Fort Worth and Houston). The hottest markets in the country are little changed from July, reinforcing the strength of supply and demand demonstrated by each market on the list, says Smoke.

“Continuing the trend of California domination this year, 11 of the 20 hottest markets this month sit in the Golden State,” Smoke says. “California’s tight supply and strong economic growth continues to propel its cities to the top month after month.”

Still right now, though, balance and stabilization are buzzwords many industry professionals are using. “The Houston market is normalizing,” says Sissy Lappin, co-founder of ListingDoor.com, in Houston. “We have lost the majority of the transferee market from oil companies, so the market is stabilized.” Lappin says sellers need to be flexible, as multiple offers are down, while homes are taking up to 60 days to sell. “The market is not crashing; it’s just returning to a normal market. 2014 was crazy and sellers could dictate the price and terms. That’s no longer the case.”

In California, and in many other parts of the U.S., fall is known as a “divider” to real estate professionals.

“That is, when the seasons turn, those who continue to find success are the buyers and sellers who are more motivated to make the transaction, rather than the casual “summer-goers” who “like to go out and see what’s on the market as an adventure and go to open houses as a hobby or casually list their homes to see what offers come in,” says Virginia Clark, an agent with Carrington Real Estate in Orange, California.

“Sellers looking to target these more motivated fall buyer need to maintain a “show-ready” home — free from odors, clutter, laundry on the floor, etc. — so that when the buyers come in, they can visualize themselves in the house and want to move quickly on the sale,” she says.

That’s the ticket, for both buyers and sellers in the U.S. real estate market this autumn. Be aggressive, be ready to pounce, and be determined to cut a good deal — those are the hallmarks of what looks to be a fairly vibrant market over the next few months.

Stocks Drop on Fed Jitters, Weak China Data

Moment Of Silence In Honor Of 9/11 Victims Held At New York Stock Exchange
NEW YORK — U.S. stocks closed down Monday as investors put off making big bets ahead of the Federal Reserve’s policy meeting this week and others worried about weak economic data from China.

Stocks are expected to stay volatile ahead of a Federal Reserve announcement scheduled for Thursday after a two-day meeting at which it will decide whether or not to make its first interest rate increase since 2006.

The Fed’s sitting around singing that tune, ‘Should I stay or should I go now. If it stay it will be trouble. If I go it will be double.’

“There’s absolutely no conviction up or down. Everybody’s waiting on the Fed. The Fed’s sitting around singing that tune, ‘Should I stay or should I go now. If it stay it will be trouble. If I go it will be double,’ ” said David Spika, global investment strategist for the GuideStone Funds, in Dallas, Texas, citing lyrics from a popular song by The Clash.

The Fed has said it will raise rates when it sees a sustained economic recovery with emphasis on jobs and inflation but while the jobs market has improved inflation has been held down by weak oil prices.

A broad group of economists polled by Reuters last week bet on a September move by a slim margin; economists at banks that deal directly with the Fed, known as primary dealers, picked December as more likely; and traders of short term interest rate futures were giving a rate rise this week only a one-in-four chance.

Stocks have been volatile since China devalued its currency in August. The S&P 500 has had moves of at least 1 percent in more than 10 sessions since Aug. 20.

“Because of the volatility in the market and the conflicting data points on the U.S. economy, it’s really difficult to get a firm handle on what the Fed’s likely to do,” Spika said.

Trading was slow with about 5.4 billion shares changing hands on U.S. exchanges, below the 8 billion daily average for the previous 20 sessions, according to Thomson Reuters data.

More China Woes

Also weighing on stocks was data showing China’s investment and factory output in August missed forecasts, raising chances China’s third-quarter economic growth may drop below 7 percent for the first time since the global crisis.

“China continues to be a concern as investors look for a bottom in regard to the country, even though the government has a lot of room to stimulate growth,” said Chris Bertelsen, chief investment officer of Global Financial Private Capital in Sarasota, Florida.

The Dow Jones industrial average (^DJI) fell 62.13 points, or 0.4 percent, to 16,370.96, the Standard & Poor’s 500 index (^GSPC) lost 8.02 points, or 0.4 percent, to 1,953.03 and the Nasdaq composite (^IXIC) dropped 16.58 points, or 0.3 percent, to 4,805.76.

Nine of the 10 major S&P sectors fell, led by the materials index. Utilities rose 0.2 percent while the energy index fell 0.8 percent as U.S. crude oil prices settled down 1.4 percent.

Apple (AAPL) shares ended up 1 percent at $115.31 after it said iPhone pre-orders were on track to beat last year’s first-weekend record.

NYSE decliners outnumbered advancers 2,044 to 971, for a 2.11-to-1 ratio; on the Nasdaq, 1,709 issues fell and 1,068 advanced for a 1.60-to-1 ratio.

The S&P 500 posted 2 new 52-week highs and 6 lows; the Nasdaq recorded 42 new highs and 72 lows.

Stocks Fall in Choppy Session; Fed Holds Rates

Markets React To Fed Interest Rate Announcement
NEW YORK — Major Wall Street indexes gave up a 1 percent rally to end lower Thursday after the Federal Reserve cited concerns about global economic growth in its decision to hold off on raising interest rates.

The U.S. central bank held rates steady in a bow to worries about the global economy, financial market volatility and sluggish inflation at home, but it left open the possibility of a modest policy tightening later this year.

The S&P financial index led the decline after being among the top performers throughout the prior five sessions.

The decline in financial stocks, which benefit from higher rates, alongside the rise in utility stocks suggest that investors now believe interest rates will remain low for longer than previously expected.

Investors’ focus turned to the next Fed meeting on Oct. 27-28 as they were still left to figure out the timing for the Fed’s first benchmark rate increase since 2006.

All the uncertainty that was in the market leading up to this meeting is still in place.

Trading was extremely choppy after the Fed’s 2 p.m. statement, with major U.S. indexes swinging between session highs and lows. The three major U.S. indexes all rose more than 1 percent for a while during Fed Chair Janet Yellen’s 2.30 p.m. press conference, but then retreated.

“All the uncertainty that was in the market leading up to this meeting is still in place. There was very little clarity given,” said John Culbertson, chief investment officer of Context Asset Management in Philadelphia.

“You’re going to hear the same conversation in the markets for the next 30 days that you heard in the last 90 days,” he said, citing difficulties making “high-conviction trades.”

Questions about when the Fed will shift gears have dogged Wall Street for months — a situation complicated in recent weeks by market turbulence linked to slowing growth in China and worries about the health of the global economy.

“In our minds it was the correct decision. The inflation data does not support a rate hike at this time. You throw in some of the global turbulence and [that] supports the decision to leave rates unchanged,” said Brian Rehling, co-head of global fixed income at Wells Fargo in St. Louis.

The Dow Jones industrial average (^DJI) fell 65.21 points, or 0.4 percent, to 16,674.74, the Standard & Poor’s 500 index (^GSPC) lost 5.11 points, or 0.3 percent, to 1,990.2 and the Nasdaq composite (^IXIC) added 4.71 points, or 0.1 percent, to 4,893.95.

Slim Chance

Ahead of the news, U.S. interest rates futures had indicated only a 25 percent chance the central bank would raise rates Thursday, and 35 of 80 economists polled by Reuters earlier this week expected an increase.

Only four of the 10 major S&P sectors ended higher, with the utility index, up 1.3 percent, having the best day. The financial services index turned negative during Yellen’s comments and ended down 1.3 percent while the telecommunications index dropped 1.1 percent.

Trading was heavy with nearly 8 billion shares changing hands Wednesday on U.S. exchanges, in line with the 8.1 billion daily average for the previous 20 trading days, which saw a spike in volume according to Thomson Reuters (TRI) data.

Advancing issues outnumbered decliners on the NYSE 1,866 to 1,201, for a 1.55-to-1 ratio on the upside; on the Nasdaq, 1,546 issues rose and 1,244 fell for a 1.24-to-1 ratio favoring advancers. The S&P 500 posted 15 new 52-week highs and 2 lows; the Nasdaq recorded 59 new highs and 31 lows.

Index of U.S. Economy Shows Small 0.1% Gain in August

Construction At A Lennar Homes Development Ahead Of New Home Sales Data
WASHINGTON — An index of future U.S. economic health edged up slightly in August after a flat reading in July. The outcome in both months signaled economic growth could be moderating.

The Conference Board said Friday that its index of leading indicators rose 0.1 percent in August following no change in July and a 0.6 percent jump in June. The July reading had initially been reported as a decline of 0.2 percent.

Conference Board economist Ataman Ozyildirim said the index was signaling that growth will be moderate through the rest of the year “with little reason to expect growth to pick up substantially.”

Economists at BMO Capital Markets said the performance of the index in August mirrored the mixed signals facing the Federal Reserve, which wrapped up a highly anticipated two-day meeting Thursday with a decision to leave interest rates unchanged given all the uncertainty facing the global economy.

Five of the 10 forward-pointing indicators that make up the index increased with the largest contributions coming from favorable interest rates and a rise in building permits.

The biggest negative factor weighing on the index was the sharp fall in stock prices during the month, a turbulent period when investors grew concerned about developments in China, the world’s second largest economy.

While the Fed decided not to boost a key interest rate, which has been at a record low near zero since late 2008, many economists expect the central bank will raise rates at least once this year. The Fed has two more meetings this year — in October and December.

Biotech Sell-Off Erases Gains; S&P Ends Flat

Stocks Close Down Day After Federal Reserve Leaves interest Rate Unchanged
NEW YORK — The S&P 500 erased an early Fed-driven rally to close slightly lower Friday, as a sell-off in biotechs offset gains in banking shares.

The Nasdaq fell 1 percent, while the Nasdaq Biotech Index tumbled 5.1 percent and retested its low from August, when it entered bear market territory.

The Dow ended solidly in positive territory, helped by shares of Nike (NKE), which hit a record high after its profit topped expectations on strong China growth. The stock, up 8.9 percent at $125, gave the biggest boost to the Dow and the S&P 500.

The market started the day higher after Federal Reserve Chair Janet Yellen late Thursday said she and other Fed policymakers don’t expect recent economic and financial market turmoil to significantly alter the U.S. central bank’s policy, easing concerns about the world’s economic health. She said she expects interest rates to be raised this year.

The declines in the biotech index extended this week’s drop to 13 percent, its biggest weekly decline in seven years. On Monday, U.S. Democratic presidential candidate Hillary Clinton said she would announce a plan to stop “price gouging” for specialty drugs, sparking a drop in the shares.

The S&P 500 health care index was down 2.7 percent, leading the decline in the S&P 500 while the S&P financial index was up 1.5 percent.

“Biotechs had been an area that had been doing really well so it could be as the market has gotten worse that people are selling stuff that’s less painful to sell. Valuations were pretty stretched,” said Eric Kuby, chief investment officer at North Star Investment Management in Chicago.

The Dow Jones industrial average (^DJI) rose 113.35 points, or 0.7 percent, to 16,314.67, the Standard & Poor’s 500 index (^GSPC) lost 0.9 points, or 0.05 percent, to 1,931.34 and the Nasdaq composite (^IXIC) dropped 47.98 points, or 1 percent, to 4,686.50.

Skittish Markets

Markets have been skittish since last Thursday, when Yellen cited concerns about slowing global growth as a key reason for holding off from a much-anticipated rate hike.

For the week, the Dow was down 0.4 percent, the S&P 500 was down 1.4 percent and the Nasdaq was down 2.9 percent.

Declining issues outnumbered advancing ones on the NYSE by 1,587 to 1,459, for a 1.09-to-1 ratio on the downside; on the Nasdaq, 1,907 issues fell and 920 advanced for a 2.07-to-1 ratio favoring decliners.

The S&P 500 posted six new 52-week highs and 17 new lows; the Nasdaq recorded 41 new highs and 179 new lows. About 7.2 billion shares changed hands on U.S. exchanges, compared with the 7.4 billion daily average for the past 20 trading days, according to Thomson Reuters (TRI) data.

Stocks Slip on Rate Uncertainty, Earnings

Financial Markets Wall Street
NEW YORK — U.S. stocks slipped Tuesday on uncertainty over the U.S. rate outlook and disappointing results from Ford and other companies.

Upbeat results from Apple after hours, however, could give the market a boost Wednesday.

Shares of Apple (AAPL), the biggest company by market capitalization, rose 2.8 percent to $116.89 after it reported higher-than-expected earnings and revenue. Apple’s stock ended the regular session down 0.6 percent at $114.55.

Nasdaq 100 e-mini futures also edged up after Apple’s results.

“Both earnings and revenues were above expectations, which I think was well embraced based on the fact that a lot of companies have been struggling on the top line,” said Daniel Morgan, senior portfolio manager at Synovus Trust Co., which owns Apple shares.

Also after the bell, shares of Twitter (TWTR) dropped 11 percent to $27.89 after it reported results. Twitter’s stock ended the regular session up 1.5 percent at $31.34.

During the regular session, Ford (F) dropped 5 percent to $14.89 after quarterly results missed expectations, while JetBlue Airways (JBLU) fell 3.2 percent to $25.36 after it said it will make less money per mile in October than it did a year ago.

Shares of other airlines also fell, and the Dow Jones transportation average dropped 2.6 percent.

The Federal Reserve began its two-day policy meeting Tuesday. While expectations for a rate hike this week are slim, investors are looking for clues in its policy statement Wednesday as to when the Fed will begin to raise interest rates.

That’s going to be parsed every way possible,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

Casting more doubts on whether the Fed will raise rates this year, data showed U.S. non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, slipped last month after a downwardly revised decline in August.

The Dow Jones industrial average (^DJI) fell 41.62 points, or 0.2 percent, to 17,581.43, the Standard & Poor’s 500 index (^GSPC) lost 5.29 points, or 0.3 percent, to 2,065.89 and the Nasdaq composite (^IXIC) dropped 4.56 points, or 0.1 percent, to 5,030.15.

Movers and Shakers

Alibaba (BABA) rose 4 percent to $79.44 after the e-commerce giant reported better-than-expected revenue. After the bell, shares of Twitter dropped after it reported results. Twitter (TWTR) stock ended the regular session up 1.5 percent.

Declines in crude oil weighed further on energy shares, and the S&P energy index, down 1.2 percent, led sector declines for the S&P 500.

Health care was only one of two S&P 500 sectors to end in positive territory for the day. The index was up 1.7 percent after better-than-expected earnings from top drugmakers Pfizer and Merck. Pfizer (PFE) was up 2.4 percent at $34.99 and Merck (MRK) was up 1.1 percent at $53.47.

Rite Aid (RAD) shares jumped 42.6 percent to $8.67. Sources said Walgreens Boots Alliance (WBA) is nearing a deal to buy the rival drugstore chain.

Among other gainers, shares of hotel operators rose after The Wall Street Journal reported at least three Chinese firms were looking to bid for Starwood Hotels & Resorts Worldwide. Starwood (HOT) shares were up 9.1 percent at $74.81 while shares of Marriott International (MAR) were up 1.8 percent at $77.99.

NYSE declining issues outnumbered advancing ones 2,293 to 797, for a 2.88-to-1 ratio; on the Nasdaq, 2,003 issues fell and 820 advanced, for a 2.44-to-1 ratio favoring decliners.

The S&P 500 posted 14 new 52-week highs and 13 new lows; the Nasdaq recorded 56 new highs and 122 new lows.

Federal Reserve policymakers meet to set interest rates and release a statement at 2 p.m. Eastern time.

Why Walgreens Is Spending $17.2 Billion to Buy Rite Aid

Earns Walgreen
To better serve aging U.S. baby boomers and the growing number of Americans with health insurance under Obamacare, becoming bigger may be better for Walgreens Boots Alliance (WBA).

On Tuesday evening, Walgreens Boots Alliance announced that it will acquire smaller rival Rite Aid for $9 a share in cash, for a total enterprise value of approximately $17.2 billion, including acquired net debt. The purchase price represents a premium of 48 percent to Rite Aid’s closing price on Oct. 26, the day before the agreement was signed.

Shares of Rite Aid (RAD) spiked about 43 percent Tuesday, but fell roughly 6.9 percent in after-hours trading. Walgreens shares rose roughly 6.8 percent Tuesday, and tacked on another 0.8 percent in after-hours trading.

“This combination will further strengthen our commitment to making quality healthcare accessible to more customers and patients — our complementary retail pharmacy footprints in the U.S. will create an even better network, with more health and wellness solutions available in stores and online,” said Walgreens Boots Alliance Executive Vice Chairman and CEO Stefano Pessina in a statement.

The combined company would be a drugstore retailing monster, operating over 12,000 locations in the U.S. and filling more than 1 billion prescription drugs each year. A merged Walgreens and Rite Aid would have an especially commanding presence in California and New York, operating more than 1,000 stores. Walgreens would also be able to beef up in Rite Aid’s second-largest market in Pennsylvania, where it operates over 500 sites compared to Walgreens’ 130 stores.

A tie-up between the two companies would pose a serious threat to CVS Health (CVS), which operates roughly 8,300 locations across the U.S. It would also bring New York City’s drugstore icons in the Rite Aid and Duane Reade brands under the ownership of Walgreens. Walgreens acquired Duane Reade for about $1.1 billion in 2010.

There are several reasons why Walgreens sought out a blockbuster deal like this, which will require a debt issuance to fund and will warrant close scrutiny by regulators who are also deliberating Staples’ (SPLS) proposed buyout of Office Depot (ODP).

First, the smaller Duane Reade and Rite-Aid brands would likely be rebranded as Walgreens over time as the retailer strives to develop a bigger national presence. Becoming more top-of-mind among consumers would be important as Walmart continues to focus on improving its prescription drug and basic preventative care services inside of its super centers. Furthermore, 1,660 Target(TGT) stores across the country are about to be retrofitted with CVS Health shops, giving the drugstore chain a more significant national presence than is the case today.

Walgreens hinted at this on Tuesday’s press release. According to the company, Rite Aid will “initially operate under its existing brand name.” But, says Walgreens, “decisions will be made over time regarding the integration of the two companies, ultimately creating a fully harmonized portfolio of stores and infrastructure.” Walgreens will likely have to close hundreds of stores to satisfy regulators, as well as more profitably operate a store network where Walgreens and Rite Aid stores are often right next to one another.

[E]ven though you will be left with two large traditional pharmacies, this is a very competitive market.

Second, the combination would likely bring cost synergies in the form of sharper prices from branded and generic drug manufacturers. Saving money on the medications they sell is vital given the likely long-term upward trajectory in healthcare costs due to Obamacare and more boomers moving onto Medicare/Medicaid. Walgreens outlined that it expects to realize synergies in excess of $1 billion.

If a combined Walgreens/Rite Aid is able to negotiate lower costs for their prescriptions, it could be reinvested in making retail prices more competitive for consumers and help wrestle market share away from Walmart, Target and CVS Health.

Portfolio manager Chris Pultz at Kellner Capital, which specializes in merger arbitrage, said that “even though you will be left with two large traditional pharmacies, this is a very competitive market. You still have the specialty pharmacies, pharmacy benefit managers like Express Scripts(ESRX) and mail order firms like Unh’s, Optimum RX and even Walmart (WMT) — in the end, divestitures should be able to solve any problems the Federal Trade Commission may have.”

Added Pultz, “Rite-Aid has been closing stores over the last few years in order to stabilize its business, and I would expect there to be additional store closures as the two companies are integrated.”

Walgreens Boots Alliance declined to comment for this article, while CVS Health didn’t respond to requests for comment.

Ford Recalls 129,000 SUVs to Fix Fuel Leaks

This product image provided by Ford Motor Co. shows the 2010 Lincoln MKX. Ford on Wedensday, Oct. 28, 2015 announced it is recalling approximately 129,000 2009 and 2010 Ford Edge and Lincoln MKX midsize SUVs in parts of the U.S. and Canada to fix potential fuel leaks. (Ford Motor Co. via AP)
Ford Motor Co. via AP2010 Lincoln MKX

DETROIT — Ford is recalling 129,000 midsize SUVs in parts of the U.S. and Canada to fix potential fuel leaks.

The company says the recall covers the 2009 and 2010 Ford Edge and Lincoln MKX.

In places where salt is used to clear the roads of snow, the fuel tanks can rust under the reinforcement brackets that hold them to the SUVs. This can cause a fuel leak or activate the check engine light. A leak could cause a fire.

Ford (F) says it doesn’t know of any fires caused by the problem.

Dealers will inspect the fuel tanks and repair or replace them at no cost to customers.

The recall affects SUVS that are registered or were sold in Connecticut, Delaware, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, West Virginia, Wisconsin and Washington, D.C. In Canada, it covers New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island and Quebec.