Dow Posts 182-Point Gain
Wall Street’s mood swung back to the sunny side on Monday, as a massive corporate buyout deal and some strong earnings reports lured buyers into the market.
But weak trading volume suggested a lack of conviction in the rally.
The Dow Jones industrial average surged 182.67 points, or 1.7%, to 11,051.05 after hospital giant HCA agreed to a buyout worth $33 billion including the assumption of debt.
Also, drug makers Merck and Schering-Plough reported quarterly profit that exceeded analysts’ estimates, lifting the drug sector.
The HCA deal encouraged investors because it was viewed as a sign that big-name stocks are trading for less than their private-market value, analysts said. The deal values the company at $51 a share. The stock had been trading more than 14% below that price before rumors of the buyout surfaced last week.
What’s more, buyouts indicate that private-equity investors have confidence in the outlook for the economy, experts say. If investors figured business conditions were about to weaken significantly, they might be more reluctant to put money to work.
“The fact that merger and acquisition activity is strong in the United States and abroad is a good indication that while the economy is expected to slow, perhaps the worry of a hard landing is overstated,” said Peter Cardillo, strategist at S.W. Bach & Co.
Monday’s market rally was broad-based. Winners topped losers by more than 4 to 1 on the New York Stock Exchange and by 3 to 1 on Nasdaq.
But NYSE share volume was below Friday’s levels. In a strong market, analysts say, rallies should occur on heavy volume.
The Standard & Poor’s 500 index rose 20.62 points, or 1.7%, to 1,260.91. That pushed the index back into the black for the year. It’s up 1%, not including dividend income.
The technology-heavy Nasdaq composite index surged 41.45 points, or 2%, to 2,061.84, after hitting a 14-month low Friday on the heels of a downbeat earnings forecast from computer giant Dell. Nasdaq is down 6.5% year to date.
The stock market has been bouncing between pessimism and optimism since mid-May, as investors have struggled to gauge the effect of rising interest rates and higher inflation on economic growth. Geopolitical tensions, including the fighting between Israel and Hezbollah militants in Lebanon, also have rocked financial markets.
The Dow has recorded triple-digit gains or losses six days this month, compared with eight such moves in the first four months of this year.
The recent volatility shows “there’s not a great deal of certainty or conviction on one side of the trade,” said Art Hogan, market analyst for brokerage Jefferies & Co.
Still, Wall Street advanced Monday in the face of an uptick in oil prices. Near-term crude futures in New York rose 62 cents to $75.05 a barrel, the third straight increase.
Among the day’s highlights:
* Merck jumped $1.59 to $38.95, a 52-week high, on its profit report. Schering-Plough gained $1.10 to $20.55. Among other drug stocks, AstraZeneca surged $1.79 to $61.37 and Wyeth rose $1.89 to $47.39.
* Earnings reports also helped to boost Polo Ralph Lauren $7.50 to $55.40 and toymaker Hasbro $1.66 to $19.15.
* NovaGold Resources jumped $3.83 to $15.50 after Barrick Gold, the world’s biggest gold producer, made an unsolicited bid worth about $1.53 billion for the company to expand into Alaska and British Columbia. The offer is worth $14.50 a share. NovaGold’s chief executive said the offer was “hostile.”
Barrick shares added 24 cents to $28.52.
Near-term gold futures fell $6.90 to $612.70 an ounce in New York, the third straight decline.
* Airline shares rallied after United Airlines parent UAL reported a preliminary second-quarter profit that beat expectations. UAL jumped $1.25 to $28.20, JetBlue gained 94 cents to $12.24 and Continental rose 57 cents to $28.57.
* Dell added 84 cents to $20.75. On Friday the stock slid $2.19 to its lowest since 2001 after Dell forecast weak second-quarter earnings. Brokerage Citigroup upgraded the stock to “buy” from “hold,” saying it expected the company’s profit margins to rise as Dell simplifies pricing and improves customer service.
And ATI soared $3.11 to $19.67 after Advanced Micro Devices agreed to buy the producer of computer-graphics chips for $5.4 billion. AMD fell 87 cents to $17.39. Nvidia, the No. 3 maker of computer-graphics chips, jumped $1.79 to $19.56.
* DreamWorks Animation slid 52 cents to $21.39, its lowest since the company went public in 2004. Prudential Securities cut its second-quarter profit estimate from 4 cents to 2 cents a share, citing lower expectations for the film “Over the Hedge.” DreamWorks shares have plunged from $28 in early May.
* Yields were little changed in the bond market. The 10-year T-note yield ended at 5.04%, the same as on Friday.
