Stocks Given Lift by GM Investment
The Dow index surged 127 points Wednesday in a broad Wall Street rally touched off by billionaire Kirk Kerkorian’s bold bet on the battered shares of General Motors Corp.
New corporate takeover deals and some robust earnings reports added to the enthusiasm for stocks. Investors also were relieved that the Federal Reserve amended its post-meeting statement near the close of trading Tuesday to say that long-term inflation expectations remained “well contained,” market strategists said.
But the rally’s key catalyst came early in the day when Kerkorian offered $31 a share, or $868 million in all, for an additional 5% stake in Dow component GM. The move signaled that Kerkorian considered GM to be undervalued.
“A lot of people thought the stock was a dead duck but obviously he doesn’t, and he has some credibility on Wall Street,” said Philip S. Dow, equity strategist at brokerage RBC Dain Rauscher in Minneapolis.
“The market needs some direction,” he said, noting recent volatility. “Maybe it needs a slap in the face from Kerkorian to get it.”
In active trading, the Dow Jones industrial average climbed 127.69 points, or 1.2%, to 10,384.64, boosted by an 18% jump in GM shares. The broader Standard & Poor’s 500 index gained 14.48 points, or 1.3%, to 1,175.65. The tech-heavy Nasdaq composite index zoomed 29.16 points, or 1.5%, to 1,962.23.
GM rocketed $5.03 to $32.80, accounting for a third of the Dow’s rise.
Gainers swamped losers by more than 3 to 1 on the New York Stock Exchange and by more than 2 to 1 on Nasdaq.
Edward Yardeni, chief investment strategist at money manager Oak Associates in Akron, Ohio, said that while many investors were “focused on macro-economic issues and Fed-watching,” veterans such as Kerkorian “are out cherry-picking opportunities in the market.”
Yardeni said he believed that investors overall are too gloomy about the outlook for the economy and the market, and that Kerkorian’s bid for more GM shares was a sign that many stocks deserved higher prices.
“I think the environment is spectacular [for stocks], but the mood is really foul,” Yardeni said.
Wednesday’s rally also may have been part of “a normal bounce back” in the wake of recent heavy selling, said Chris Orndorff, head of equities at investment management firm Payden & Rygel in Los Angeles.
Since falling 6.7% from a 3 1/2 -year high March 7 through last Thursday, the S&P; 500 has risen in three of four sessions.
Orndorff said the mood on Wall Street could sour quickly, however, if Friday’s employment report for April disappoints investors. Economists expect the Labor Department’s report to show that 174,000 nonfarm jobs were added last month.
Although corporate earnings generally have remained strong, modest employment growth has stirred worries that the recent economic slowdown could deepen.
Two large-scale acquisitions added to the upbeat tone Wednesday on Wall Street.
Germany’s Fresenius Medical Care said it would buy the Nashville-based dialysis company Renal Care Group for $3.5 billion in cash. Renal Care gained $6.40 to $45.70.
In the wireless communications sector, American Tower said it would scoop up SpectraSite in a deal valued at $3.1 billion. SpectraSite rose $5 to $61.20 and American Tower eased a penny to $17.20.
On the earnings front, insurers MetLife and Cigna reported better-than-expected quarterly results and guided analysts higher for the rest of the year. MetLife gained $4.71 to $43.55 and Cigna rose $2.32 to $96.77.
Insurance broker Aon advanced $3.18 to $24.45 after also topping profit expectations.
In Treasury trading, yields rose as investors shifted assets into equities. Bond yields move in the opposite direction from prices. The yield on the benchmark 10-year T-note climbed to 4.19% from 4.17% on Tuesday.
Crude oil futures rebounded from a two-month low despite government data showing another increase in U.S. inventories last week. Traders cited fears that demand might outstrip supply later this year.
Oil rose to $50.13 a barrel in New York trading, up 63 cents from $49.50 on Tuesday.
In other markets highlights:
* Stocks rallied throughout the auto sector in response to the GM news. Ford climbed 69 cents to $10.16 and DaimlerChrysler gained $1.65 to $40.95. Among parts makers, Delphi jumped 43 cents to $3.85, BorgWarner surged $3.39 to $51.29 and Dana rose 71 cents to $12.24.
* Investment manager Legg Mason jumped $8.92 to $79.47 after reporting a 28% rise in quarterly profit.
* Woodland Hills-based Internet service provider United Online soared $3.08 to $11.94 after reporting strong earnings. Many other Internet issues also were sharply higher, including Priceline.com, up $1.45 to $26.49, and EBay, up $2.30 to $34.47.
* On the downside, video game maker Electronic Arts fell $3.45 to $49.45 after warning that earnings in the current year would be lower than expected.
* Benefits consultant Hewitt Associates lost $2.46 to $24.50 after guiding profit expectations for this year to the lower end of estimates.
Times staff writer Tom Petruno contributed to this report.
