Wall Street rebounds from a down week
Stocks soared Monday as Wall Street joined overseas markets in riding a wave of merger news to bounce back from a losing week. The Dow Jones industrials rose 115 points.
The buyout news, particularly the possibility of an enormous merger that would unite Dutch bank ABN Amro Holding with British bank Barclays, propelled stocks higher as investors concluded that companies must still be upbeat about the economy if they were willing to consider new deals.
The advance kicked off an important week for economic data; the first reading, a report from the Chicago Federal Reserve, said regional manufacturing slowed in January. The market was also waiting for today’s start of the U.S. Federal Reserve’s two-day meeting on interest rates. Although few investors expect that the Fed will adjust short-term interest rates, they will be looking for any change in the central bank’s posture that could hint at where rates are heading in the coming months.
Given the volatility that has returned to the marketplace and the pending statement from the Fed, market watchers aren’t ruling out more big swings in stocks going forward.
“I think the markets are very sentiment-driven,” said Subodh Kumar, global investment strategist at Subodh Kumar & Associates. “It does also appear that when the global markets see recovery in one area they all seem to move up, and when they see concern in another market they all seem to move down.”
The Dow rose 115.76 points, or 1%, to 12,226.17, its biggest one-day gain since March 6, when the index climbed more than 150 points.
Broader stock indicators also rose sharply. The Standard & Poor’s 500 index gained 15.11 points, or 1.1%, to 1,402.06, and the Nasdaq composite index advanced 21.75 points, or 0.9%, to 2,394.41.
Bond yields rose, with the 10-year Treasury note climbing to 4.57% from 4.55% on Friday. Crude oil futures fell 52 cents to $56.59 a barrel in New York.
The advance in U.S. equities came as stocks overseas rose sharply, even after China’s central banks raised interest rates to try to cool the economy.
Overseas, Japan’s Nikkei stock average rose 1.6%, Hong Kong’s Hang Seng index advanced 1.6% and the sometimes volatile Shanghai Composite Index rose 2.9%. Britain’s FTSE 100 closed up 1%, Germany’s DAX index added 1.4% and France’s CAC-40 grew 1.4%.
“I would attribute what we’re seeing to relief that the Asian markets were stronger despite the Bank of China having raised interest rates,” Kumar said. “I don’t put a lot of faith in the idea that this rally is sustainable.”
Investors are trying to determine whether the economy can pull off a so-called soft landing or whether areas of weakness such as the housing sector are poised to drag the economy into a pronounced slowdown.
They seemed to look past an estimate by the Chicago Fed that Midwestern manufacturing activity contracted 2.3% in January from December to its lowest level since October 2005. Investors also appeared to shrug off a decline in sentiment in the new-housing market: The National Assn. of Home Builders said its index of sales conditions for new single-family housing fell to 36 from a reading of 39 in February, which was revised down from 40. The index’s March decline was its first in six months.
Housing data that are more closely watched are due out this week: The Commerce Department will report today on housing starts and building permits, and the National Assn. of Realtors will report Friday on home sales, inventories and prices.
“People are watching the housing figures much more than they used to,” said Brian Gendreau, investment strategist for ING Investment Management, pointing to the worries over the sub-prime mortgage sector, where troubles could further slow the already struggling housing market.
Concerns about the economy and areas such as the sub-prime industry, which makes a business of lending to people with poor credit, helped push stocks lower last week. The Dow industrials fell 1.4%, the S&P; 500 gave up 1.1% and the Nasdaq composite index slid 0.6%.
Gendreau added, though, that mortgage delinquencies were fairly isolated geographically and didn’t appear likely to damage the wider economy. “It’s hard to point to anything fundamentally wrong with this economy,” he said.
Merger news helped lift stocks Monday, especially word that ABN Amro, the largest bank in the Netherlands, was a possible buyout target of Barclays. Britain’s Sunday Times issued the report, citing anonymous sources. Both companies declined to comment. ABN’s U.S.-traded shares rose $5.12 to $41.36, while Barclay’s fell 15 cents to $53.35.
In other takeover news, ServiceMaster, a provider of housecleaning and other services, agreed to be acquired by an investment group for about $4.48 billion. ServiceMaster rose $1.68, or 12%, to $15.15.
Also, Community Health Systems, which operates hospitals, agreed to acquire Triad Hospitals for $54 a share, or about $5.1 billion. Community Health fell $2.02, or 5.5%, to $34.78, while Triad rose $2.59, or 5.2%, to $51.95.
