Microsoft’s bid for Yahoo caps a big week for stocks
The stock market capped its best week in nearly five years with another sizable advance Friday, as investors looked past a drop in payrolls and focused instead on Microsoft’s bid for Yahoo and a possible rescue plan for troubled bond insurers.
The Dow Jones industrial average and the Standard & Poor’s 500 index each jumped more than 4% for the week, marking their steepest gains since March 2003.
Major stock indexes initially surged to their highs for the day on news of Microsoft’s $44.6-billion bid for Yahoo. Merger activity, which often energizes stocks, has been in short supply for months. But the market gauges retreated into negative territory before recovering to approach their highs as investors digested economic news that brought to mind the continuing fallout from the housing and mortgage crisis.
The first blow came from the Labor Department’s worrisome employment report. The economy lost a net 17,000 jobs in January, marking the first contraction of the labor market in more than four years. The news confounded economists, who had estimated on average that payrolls grew by 70,000 jobs. The unemployment rate fell to 4.9% from 5% in December as the labor pool shrank.
The Commerce Department added to the fray, reporting that construction spending dropped 1.1% in December, the most in 15 months and twice what analysts had expected.
And rating agency Moody’s Investors Service warned that it expected to downgrade some bond insurers this month. A top rating is crucial for the insurers to draw new business and for investors to feel secure about the bonds the companies already insure.
Stocks, however, found support when the Institute for Supply Management, a business group, said its index of manufacturing activity rose to 50.7 from 48.4 in December. Wall Street had expected the figure would come in at 47. A reading above 50 suggests expansion of the manufacturing sector, while one below 50 indicates contraction.
“We’re starting to see the long-term investors and the fund managers come back into the market. That’s why I think you’re seeing stocks rally even when there is negative news,” said Marc Pado, market strategist for Cantor Fitzgerald.
The Dow Jones industrial average rose 92.83 points, or 0.7%, to 12,743.19 after climbing more than 200 points Thursday.
Broader stock indicators also moved higher. The Standard & Poor’s 500 rose 16.87 points, or 1.2%, to 1,395.42, and the Nasdaq composite index advanced 23.50 points, or 1%, to 2,413.36.
The Russell 2,000 index of smaller companies jumped 17.20 points, or 2.4%, to 730.50.
Advancing issues outnumbered decliners Friday by more than 3 to 1 on the New York Stock Exchange.
For the week, which was punctuated by a half-point Federal Reserve interest rate cut Wednesday, the Dow jumped 536.02 points, or 4.4%. The S&P; 500 added 4.9%, the Nasdaq rose 3.8% and the Russell 2,000 soared 6.1%.
The week’s gains made up for some of the huge losses seen in the earliest days of the year. Still, the S&P; 500, after its worst January since 1990, ended Friday down 5% year to date.
Yields on government securities were mixed Friday along with stocks. The yield on the benchmark 10-year Treasury note edged down to 3.59% from 3.61% late Thursday.
The dollar was mixed against other major currencies while gold prices fell.
Oil prices slid after the employment report raised concerns that a slowing U.S. economy would reduce demand for energy. Crude futures fell $2.79 to $88.96 a barrel in New York.
Shares of bond insurers rallied on word that banks and regulators were making progress in discussions about a possible bailout of the troubled sector, though no proposal was imminent.
The second-largest bond insurer, Ambac Financial Group, rose $1.56, or 13%, to $13.20, while industry leader MBIA rose 86 cents, or 5.6%, to $16.36.
Before the market opened, Microsoft said it had offered to buy Yahoo for $31 a share. Yahoo, which said it would consider the proposal, surged $9.20, or 48%, to $28.38.
Microsoft fell $2.15, or 6.6%, to $30.45 on concern that the software giant would be overpaying for the Web company.
Shares of Google, a rival to both Yahoo and Microsoft, slumped $48.40, or 8.6%, to $515.90 as investors assessed the proposed takeover as well as the slowing growth Google reported Thursday.
In other market highlights:
* Motorola jumped $1.19, or 10%, to $12.69. The company said late Thursday that it might sell or spin off its lackluster mobile phone business.
* J.C. Penney rose $1.15, or 2.4%, to $48.40 on a report that billionaire activist investor Carl Icahn had acquired a stake in the retailer.
* Ryder System surged $3.24, or 6.2%, to $55.24 after the trucking company posted better-than-expected earnings.
* Estee Lauder climbed $2.61, or 6.2%, to $44.83. International sales helped offset domestic weakness and drove the makeup and fragrance company’s profit up 8% in the latest quarter.
* Monster Worldwide advanced $1.97, or 7.1%, to $29.82 after the job-website operator posted a 15% increase in profit thanks to strong sales abroad.
* Overseas, key stock indexes surged 2.5% in Britain, 1.7% in Germany and 2.2% in France. Shares slipped 0.7% in Japan.
