Stocks Rally on Merger Frenzy
Updated from 4:04 p.m. EST
Stocks ended solidly higher Tuesday as several major developments on the mergers-and-acquisitions front and decent economic news put investors in a buying mood.
The
Dow
gained 87.03 points, or 0.8%, to 10,714.88; the
S&P 500
added 11.18 points, or 1%, to 1156.99 -- just shy of the 23-month high touched last week. The
Nasdaq
rose 26.79 points, or 1.3%, to 2080.35.
Volume was 1.4 billion trades on the
New York Stock Exchange
, while 1.6 billion trades changed hands on the Nasdaq. Winners beat losers by about 2 to 1 on both exchanges.
The 10-year Treasury bond was up 1/32 in price, yielding 4.03%. Gold was stronger while crude oil sagged.
Stocks' strength came despite another hit to the dollar, which traded at $1.2846 per euro, down from $1.277 Monday night. The weakness followed comments Monday by European central bankers evincing no urgency in cutting interest rates, which remain well above those in the U.S. The dollar was worth 105.66 Japanese yen.
In economic news, the government said industrial production rose 0.8% in January, matching the consensus forecast. December's figure was revised to unchanged. The factory use rate for January was 76.2%, just short of the 76.4% expectation and up from a revised rate of 75.6% in December.
Hugh Johnson, chief investment officer at First Albany, said stocks were boosted by both the day's M&A news and the economic data, which he called "very strong." However, he felt the data was merely "the frosting on the cake. ... They are not the deep issue. They are just surface noise."
Johnson said what's pushed the market is a growing sense that there is a lot more upside to valuations than some analysts have calculated. "The stock market is at worst fairly valued, and there's plenty of room on the upside," he said. "It's up today because interest rates have been stable and therefore worries about valuation have receded."
Investors who are worried about valuation are not incorporating low and stable interest rates into their forecasts, Johnson said. "The deep structure is
one of the very positive prospects for earnings in a very benign interest rate environment. That's a really good combination," he said.
Johnson noted that the current bull run is approaching its one-year anniversary. Thus, "to become worried, when the median duration of the eight other postwar bull markets has been 39 months, is premature," he concluded.
In corporate news, Cingular, the U.S. joint venture of
SBC
(SBC)
and
BellSouth
(BLS)
, announced a deal Tuesday morning to acquire
AT&T Wireless
(AWE)
for $41 billion cash, ending a bidding war with
Vodafone
(VOD) - Get Report
. AT&T Wireless shares jumped $1.96, or 16.6%, to $13.78.
Disney's
(DIS) - Get Report
board said late Monday night that it was unanimously recommending against acceptance of
Comcast's
(CMCSA) - Get Report
unsolicited takeover offer, which is currently valued at about $47.5 billion. Disney said the price is too low, but said it would consider "any legitimate proposal" going forward. Disney shares closed down 2 cents at $26.90, slightly down from their Friday close of $26.92 but still well below the per-share price implied in Comcast's all-stock offer.
Stocks in the airline sector had a strong day:
Continental
(CAL) - Get Report
was up 58 cents, or 4%, at $15.21;
AirTran Holdings
(AAI)
rose 42 cents, or 3.4%, at $12.89; and
Delta Air Lines
(DAL) - Get Report
gained 38 cents, or 3.9%, at $10.17.
Deere & Co.
(DE) - Get Report
said it earned 68 cents a share in the first quarter on a 28% increase in total sales. Analysts had been calling for 52 cents a share. Shares of the company closed up $2.99, or 4.7%, at $67.
Omnicom
(OMC) - Get Report
said it earned $1.17 a share in the fourth quarter, missing analysts' consensus by a penny. Revenue increased 18%. Shares ended down $1.18, or 1.4%, at $81.92.
Teva Pharmaceuticals
(TEVA) - Get Report
said fourth-quarter earnings were 62 cents a share, beating the Wall Street consensus for 57 cents a share. Revenue jumped 22%. Shares of the company were up $1.28, or 1.9%, at $67.20 in the day's trading.
SG Cowen upgraded shares of
Medtronic
(MDT) - Get Report
to strong buy from market perform. Meanwhile, Wachovia downgraded shares of
Monster Worldwide
(MNST) - Get Report
to market perform from outperform. Shares of Medtronic closed up 66 cents, or 1.4%, at $48 while shares of Monster were down 22 cents, or 0.9%, at $23.18.
Overseas markets closed mostly higher, with London's FTSE up 1.2% to 4461.5, while Germany's Xetra DAX added 0.6% to 4095.9. In Asia, Japan's Nikkei added 1.4% to close at 10,701, while Hong Kong's Hang Seng fell 0.1% to 13,815.
In Wednesday economic news, housing starts and building permits for January will be released at 8:30 a.m. EST. Analysts foresee 2 million housing starts and 1.91 million building permits, compared with 2.088 million and 1.953 million in December, respectively.
In earnings news,
Applied Materials
(AMAT) - Get Report
and
Jones Apparel Group
(JNY)
will issue quarterly reports.