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U.S. Markets Pull Ahead Though Geopolitical Threats Confine Gains

NEW YORK (TheStreet) -- U.S. stock markets pulled ahead to finish Monday's session higher, though gains were constricted as international news tussled with positive homegrown developments. Wall Street hovered close to flat as geopolitical concerns in the Middle East and Eastern Europe counteracted encouraging economic reports and positive deal news.

The Dow Jones Industrial Average edged 0.03% higher to 16,781.39, while the S&P 500 fared a little better, up 0.08% to 1,937.78. The Nasdaq gained 0.24% to 4,321.11.

Limiting gains was news the U.S. and Iran are expected to begin talks this week on how to counter the growing insurgency threat in Iraq. The Wall Street Journal reported radical Sunni militia claim to have executed hundreds of Shiite Iraqi soldiers. Meanwhile, the Islamic State of Iraq and al-Sham, or ISIS, has reportedly seized control of the town of Tal Afar in northwest Iraq.

In Ukraine, in one of the deadliest events in the country's escalating crisis, a Ukrainian military plane was shot down by pro-Russian separatists over the weekend, killing all 49 people on board.

Piper Jaffray technical analyst Craig Johnson wrote that the impact of all historical Middle Eastern conflicts since 1970 shows the S&P 500 tends to trade modestly lower at the beginning of these conflicts, but losses ahead of the conflict are typically quickly recaptured and the S&P is generally higher three months later.

The Federal Open Market Committee meeting kicks off on Tuesday, with a rates announcement expected on Wednesday. Officials are widely expected to continue the current pace of tapering to their asset purchases by $10 billion a month. There will also be more scrutiny on the timing and language of the committee's first rate hike plans.

Monday's U.S. economic data overall was stronger than expected. May industrial production rose 0.6% vs. the consensus 0.5%, and April's upwardly revised -0.3%. The June Empire State manufacturing index also exceeded market forecasts, holding onto its May gains as it increased to 19.3.

Market consolidation trends continued over Monday's session with Medtronic (MDT), Covidien (COV), Fusion-io (FIO) and SanDisk (SNDK - Get Report) each trading heavily on deal news.

Platinum Partners president Uri Landesman believes the flurry of M&A activity is a trend likely to continue. Speaking with TheStreet, he explained, "Companies [aren't] going to be able to earn what the market is expecting them to. That will spawn more M&A as people seek to buy growth as opposed to achieving it organically. That is positive for the market because if people think the big fish are going to swallow the minnows, they're going to figure out which minnows are going to be bought."

U.S. medical device manufacturer Medtronic agreed to buy Ireland-based competitor Covidien in a cash-and-stock deal worth $42.9 billion. The latter surged 20.5% to $86.75 on the news.

Fusion-io soared 22.4% to $11.36 following the announcement SanDisk would acquire the tech company for $1.1 billion, or $11.25 a share, in cash.

Pipeline operator Williams (WMB) spiked 18.7% to $56.02 after reaching an agreement to acquire control of Access Midstream Partners (ACMP) for $5.99 billion.

Markets rose on Friday but not enough to erase losses sustained over the previous two days. The escalating situation in Iraq hung heavy in investors' minds and so-so U.S. economic data kept Wall Street cautious. The three indices finished the week lower, the first weekly decline in three weeks.

--By Keris Alison Lahiff, Andrea Tse and Joe Deaux in New York

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Chart of I:DJI
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