Stocks Rise Modestly, Helped by Takeovers
U.S. stocks ended modestly higher on Monday, as a spate of big merger deals helped support the market despite rising bond yields and a rebound in oil prices.
Wall Street opened with a rally, buoyed by takeover announcements worth more than $25 billion in all. The deals were in industries including drugs, financial services, gaming and newspapers.
Executives’ willingness to buy rivals at current share prices suggests there’s value in the market, some analysts said.
“The recurring drumbeat of deals is ultimately going to get people’s attention and bring a little interest back to the U.S. stock market, which is probably the least-appreciated major asset class in the world these days,” said Kevin Bannon, chief investment officer at Bank of New York.
The Dow Jones industrial average, which gained 104 points on Friday after an upbeat report on U.S. job creation in February, rallied as much as 40 points in the first hour on Monday.
But the Dow faded as the session progressed and ended almost unchanged, off 0.32 point to 11,076.02.
Broader indexes ended with small gains. The Standard & Poor’s 500 inched up 2.55 points, or 0.2%, to 1,284.13.
The technology-heavy Nasdaq composite added 4.99 points, or 0.2%, to 2,267.03.
Winners topped losers by narrow margins on the New York Stock Exchange and on Nasdaq.
Higher oil prices weighed on the stock market. Near-term crude futures in New York jumped $1.81 to $61.77 a barrel as the United Nations prepared to consider Iran’s refusal to end its nuclear research. A cutoff of oil by Iran, the world’s fourth-largest oil producer, could drive prices sharply higher.
Rising Treasury bond yields also may have left some equity investors cautious. The 10-year T-note yield, a benchmark for mortgage rates, ended at 4.77%, up from 4.76% on Friday and a fresh 21-month high.
Bond yields have been moving up in the U.S., Japan and Europe since January amid signs of resilience in the global economy.
Japan’s economic recovery last week spurred the Bank of Japan to announce that it would begin to slowly tighten credit.
On Friday, the Labor Department’s report that the U.S. economy created a net 243,000 jobs in February, more than most analysts expected, raised the likelihood that the Federal Reserve would continue raising short-term interest rates.
Stock markets worldwide had stumbled in recent weeks on worries about rates, but buyers have returned in the last few days. Healthy economic growth would underpin corporate earnings and share prices, market bulls say.
On Monday, Japan’s Nikkei-225 stock index surged 1.5% to 16,361 even though the yield on 10-year Japanese government bonds rose to 1.7%, up from 1.66% on Friday and the highest since August 2004.
In France, the 10-year government bond yield ended at 3.74% on Monday, up from 3.72% on Friday and the highest in nearly one year. Nonetheless, the French CAC-40 stock index gained 0.8% to 5,107.47, the highest closing level since 2001.
Merger activity in Europe has been a big factor driving shares higher this year, analysts say.
“There is more integration to come in Europe,” said Philip Manduca, a fund manager at Titanium Capital in London. “Costs are going up and increasing market share is seen as the only way to grow.”
Deal activity also could continue to bolster the U.S. market, some experts say.
“There’s activity in every sector, from financial services to chemicals to telecommunications to healthcare,” said Rob Kindler, JP Morgan’s global head of mergers and acquisitions. “I can’t remember another [mergers] up-cycle where every sector has been busy.”
So far this year the dollar value of U.S. merger volume has topped $285 billion, up 14% from a year earlier, although the number of deals has lagged with 1,378 transactions, compared with 1,600 a year ago, according to research firm Dealogic.
Among the day’s highlights:
* Drug stocks were mostly higher after Germany’s Merck made an unsolicited, $17.5-billion bid for domestic rival Schering. Schering rejected the offer, but its U.S.-traded shares soared $21.49 to $101.19.
The two firms are unrelated to the U.S. companies of the same names, Merck & Co. and Schering-Plough, which rose 44 cents to $35.20 and 42 cents to $18.47, respectively. Among other major drug firms, Novartis rose 66 cents to $55.78 and AstraZeneca surged $1.14 to $50.94.
* Also in the drug sector, Corona-based Watson Pharmaceuticals agreed to buy rival Andrx for $1.9 billion in cash. Watson fell 55 cents to $29 but Andrx jumped $2.14 to $23.73.
* Newspaper stocks were mixed after McClatchy agreed to buy Knight Ridder for $4.5 billion. McClatchy lost $1.51 to $51.55. Tribune, parent of The Times, added 5 cents to $31 and Dow Jones gained 23 cents to $40.61, but New York Times lost 46 cents to $26.91.
* In the tech sector, Advanced Micro Devices slid $2.63 to $34 after two Wall Street analysts cut their 2006 earnings estimates for the company, citing potential price cutting by rival Intel. Shares of Intel lost 12 cents to $19.73, a 52-week low.
Apple Computer rallied $2.49 to $65.68. Citigroup raised its rating on the stock to “buy” from “hold,” citing new products in the pipeline.
* Some telecom shares continued to rally after last week’s surprise merger deal between AT&T; and BellSouth. Vodafone jumped $1.04 to $22.56; BT Group added 56 cents to $39.50.
