Stocks Rally on Merger News
Wall Street shook off concerns about inflation and pushed stocks higher Monday as a spate of merger news encouraged investors to return to the market. Rising oil prices, however, kept the gains in check.
A deal announced in the energy sector and talks among online brokerages and airlines showed that companies’ appetites for mergers and acquisitions remained healthy, indicating corporate America’s confidence in the economy.
Investors also seemed to have more confidence in the Federal Reserve’s ability to balance economic growth with rising prices, keeping both inflation and the specter of an economic slowdown in check. And finally, with the major indexes well off their 2005 highs, investors saw a chance to find bargains.
“I think you’ve got a sense of optimism out there we haven’t seen in a while,” said Bill Groenveld, head trader at Finance Investments. “It’s not enough to make a big push higher but just enough to start a slow, sustained climb. I think there’s faith in the Fed to manage things, and earnings growth has been good. So you’re seeing folks creep back into the market.”
The Dow Jones industrial average rose 38.94 points, or 0.4%, to 10,384.34.
Broader stock indicators also made gains. The Standard & Poor’s 500 index added 7.49 points, or 0.6%, to 1,178.84, and the Nasdaq composite index gained 12.32 points, or 0.6%, to 1,979.67.
Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange.
Oil prices surged past $52 a barrel as concerns about summer gasoline demand continued to plague the market. A barrel of light crude was quoted at $52.03, up $1.07, in New York trading.
Bond yields rose as investors anticipated a surge in supply from a Treasury auction later in the week. The yield on the 10-year Treasury note rose to 4.28% from 4.26% on Friday.
The move in the bond market also signaled movement of capital from bonds back into stocks. The major indexes have held on to their recent gains, with very little of the frenzied selling that marked April’s trading.
Volume, however, remained light, and some analysts and traders believed that investors remained wary. Even bullish analysts agreed that the market would remain sensitive to bad news and would send stocks lower at the first sign of negativity.
“With all the questions out there, nobody sees a real reason to stick their neck out,” said Mike Viracola, managing director and co-head of equities at Adams Harkness in Boston. “And with nobody out there making bets, the path of least resistance for this market is down.”
In other market highlights:
* Cinergy jumped $1.94 to $42.32. The owner of utilities in Ohio, Indiana and Kentucky agreed to be bought by Duke Energy for $8.9 billion in stock. Cinergy holders would exchange each of their shares for 1.56 shares of Duke. The price is 13% higher than Cinergy’s last close. Duke, the largest U.S. utility company, slipped 54 cents to $28.82.
* An index of energy shares gained 1.2% for the biggest increase among 10 industry groups in the S&P; 500. Chevron added 71 cents to $53.45. ConocoPhillips rose $1.84 to $106.76.
* America West Holdings is closer to a deal to buy US Airways Group, the Wall Street Journal reported. America West lost 8 cents to $4.34. In other takeover activity, the Journal and the New York Times reported that E-Trade Financial has made an unsolicited takeover bid for rival Ameritrade Holding. E-Trade rose 69 cents to $12.62, while Ameritrade surged $2.11 to $13.42.
* Pastry maker Sara Lee fell 25 cents to $21.30. Merrill Lynch chief U.S. strategist Richard Bernstein removed the company from his “strategy portfolio,” and a J.P. Morgan Chase analyst downgraded the shares.
* McDonald’s added 74 cents, or 2.5%, to $30.12 for the biggest rally in the Dow industrials.
