Acquisitions Give Stocks a Lift
A series of multibillion-dollar acquisitions gave Wall Street a modest advance Monday although many investors remained cautious ahead of the Federal Reserve’s decision on interest rates later in the week.
Investors were cheered by news from mining company Phelps Dodge that it would pay $40 billion in cash and stock for rivals Inco and Falconbridge, while steelmaker Arcelor agreed to a $33-billion bid from Mittal Steel.
Also, Johnson & Johnson agreed to buy Pfizer’s consumer products unit for $16.6 billion.
Merger-and-acquisition activity is seen as a sign of economic health, as big companies aren’t expected to make major deals if they foresee a decline in the economy. Yet Wall Street’s boost from these deals could be short-lived as investors fret over how far the Fed will raise rates to combat inflation.
“I think the hand-wringing that’s hampered the market will get out of the way after the Fed’s meeting Thursday,” said Chris Johnson, manager of quantitative analysis at Schaeffer’s Investment Research in Cincinnati. “But clearly, the Fed is still going to be hawkish on inflation, and that means the possibility of more hikes down the road.”
The Dow rose 56.19 points, or 0.5%, to 11,045.28. Broader stock indicators also made gains. The Standard & Poor’s 500 index climbed 6.06 points, or 0.5%, to 1,250.56, and the Nasdaq composite index gained 12.20 points, or 0.6%, to 2,133.67.
The yield on the benchmark 10-year U.S. Treasury note hit a fresh four-year high after the government reported an unexpected rise in new-home sales, suggesting that the crucial housing sector was not sagging as quickly as some believed. The Commerce Department said sales of new single-family homes increased 4.6% last month.
Wall Street had been expecting a 4% drop in sales. The sign of strength in housing bolstered sentiment that the Fed would continue raising interest rates, and the 10-year T-note edged up to 5.24% from 5.23% on Friday.
Although the Fed’s coming decision probably will dominate trading later in the week, investors welcomed the chance to buy mining, steel and healthcare stocks, which, aside from the merger and acquisition activity there, are seen as defensive plays for a questionable economy.
“It’s definitely about the M&A; activity today, because other than that, you’re really not seeing much else out there moving,” said Brian Williamson, equity trader at Boston Company Asset Management.
In other market highlights:
* Oil prices moved higher on concerns about a shipping glitch in the Gulf of Mexico. A barrel of light crude settled at $71.80, up 93 cents, in New York trading.
* Inco surged $5.95, or 10%, to $64.21 and Falconbridge gained $2.50, or 5%, to $51.80 on Phelps Dodge’s takeover announcement. The combined company, to be called Phelps Dodge Inco, would be the world’s largest nickel producer and the world’s largest publicly traded copper producer.
Phelps Dodge tumbled $6.72, or 8%, to $76.23.
Mittal Steel fell 77 cents to $31.40 after wrapping up its deal to buy Luxembourg-based Arcelor.
* Home builders and retailers, among the groups most influenced by consumer spending, advanced after the home-sales report. Home builders in S&P; indexes gained 2.2%. S&P; 500 retailers rose 0.6%.
Among home builders, D.R. Horton climbed 74 cents to $24.40 and Lennar added $1.14 to $45.68 even after cutting its earnings forecast for the rest of the year and reporting a 3% decline in orders for its fiscal second quarter ended in May. Los Angeles-based KB Home zoomed $1.83 to $47.18.
Lowe’s, the home-improvement retailer, added $1.15 to $62.01. Dillard’s, a department-store operator, advanced 43 cents to $31.40.
* Sirius Satellite Radio climbed 23 cents to $4.70 and XM Satellite Radio added 91 cents to $14.37. Sirius Chief Executive Mel Karmazin said the company would consider buying XM, its larger rival in the pay-radio industry, if price and regulatory concerns weren’t obstacles.
* Zimmer Holdings, Stryker and Biomet shares dropped after the makers of medical implants said they had received government subpoenas as part of an investigation into possible antitrust-law violations.
Zimmer lost $4.33 to $58.70, Stryker slipped $2.68 to $42.20 and Biomet fell $1.80 to $33.18.
* Boston Scientific dropped $1.20 to $17.06 after the medical device maker told 27,200 patients that their pacemakers and defibrillators might fail without warning because of a defective part.
* Pfizer climbed 37 cents to $23.01 after it agreed to sell Johnson & Johnson its consumer products unit, which includes such brand names as Listerine, Nicorette and Sudafed. Johnson & Johnson fell $1.11 to $60.21.
* Shares of Walgreen added 49 cents to $44.10 after the drugstore chain said quarterly earnings rose 14% as newly opened stores generated increased sales.
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Bloomberg News and Reuters were used in compiling this report.
