J&J, GE Spinoffs Fail to Trigger the Usual Stock Market Rallies

(Bloomberg) -- Under normal circumstances, the decisions by Johnson & Johnson and General Electric Co. to break up their businesses would have electrified Wall Street. But instead investors are greeting the news with a bit of a shrug. 

Shares of GE are down 1.6% since Nov. 9, when the iconic company stunned the market by saying it would split into three separate businesses. Meanwhile, J&J is up 1.3% on Friday and well off its session highs after the maker of cancer treatments, mouthwash and Tylenol said that it will divide into two public entities, one focused on consumer products and the other on pharmaceuticals and medical devices. 

Usually, news of a corporate breakup galvanizes the stock. For example, International Business Machines Corp. surged 6% in a single day when it said last October that it was spinning off a slower-growth business that manages corporate computer systems. And in 2014, Hewlett-Packard Co. jumped 4.7% after confirming that it was splitting into two separate firms. 

Markets typically view these moves as positive because they help executives concentrate on the core business and cut back on debt. But right now, investors appear to be more fixated on short-term goals like chasing beta to boost performance into the year-end, according to Matt Maley, chief market strategist at Miller Tabak & Co. And the fastest route to that is probably through tech high-flyers or meme stocks rather than Johnson & Johnson or GE.

“Individual investors probably aren’t focused on these companies, and institutional investors become more short-term oriented at this time of the year,” Maley said by phone. “The extra dollar that they may put into these companies in April or May they may not find in late November.”

The reaction of Moody’s Investors Service, which said that Johnson & Johnson’s plan to split its consumer products business into an independent company is credit negative, could be a contributing factor as well. J&J is trading at about 17 times projected earnings, above the average valuation of its major peers. The global recognition of its consumer products business justified some of the premium, Maley said. But the valuation case could be tougher to build after the spinoff, he said. 

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