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Mergers Cheer a Still-Skittish Wall Street

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A flurry of merger activity capable of warming

Monty Hall's

cockles helped rekindle the enthusiasm inspired last week by the

Federal Reserve's


Last night,


(MCK) - Get McKesson Corporation Report

agreed to buy

HBO & Co.


for about $14.5 billion.

Smaller deals include


(CLX) - Get Clorox Company Report


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TheStreet Recommends

First Brands


for $2 billion; Canada's






in a deal valued at $650 million, including debt assumption; and


(INTC) - Get Intel Corporation Report




for $6 a share, or about $182 million.


Dow Jones Industrial Average

initially slid as low as 8388.96 but then rebounded to a high of 8498.64 and lately was up 39 to 8456. Despite disappointing earnings,

J.P. Morgan

(JPM) - Get JPMorgan Chase & Co. Report

was the Dow's leading gainer as financial stocks in general continue to improve in the wake of the Fed easing.


S&P 500

was lately higher by 2 to 1059 after having dipped as low as 1054.23 early on. The

Nasdaq Composite Index

was recently up 16 to 1637 despite


(MSFT) - Get Microsoft Corporation Report

being down 3% as the historic antitrust trial against the software maker gets underway. Meanwhile, the

Russell 2000

was leading all major measures with a gain of 8, or 2.3%, to 351.


New York Stock Exchange

trading, 358 million shares had traded while advancers were besting decliners by 1,906 to 982. In

Nasdaq Stock Market

trading, 429 million shares had traded while gainers led 2,295 to 1,337.

Traders embraced the relative calm this morning and expected the afternoon to follow suit.

"Earnings are doing okay and the M&A activity is helping, but it's pretty quiet," said Jay Meagrow, vice president of trading at


in Cleveland. "We've got orders on both sides, but nothing exciting. I'd say we'll definitely end up to the upside, but nothing too exciting. We're kind of sideways, that's just how it feels."

Despite the continuation of last week's rally, some remain unconvinced a true reversal of the market's fortune has occurred.

The Fed's ease is a "step in the right direction, but doesn't change our view that stocks are still overvalued, earnings are not coming through as people expect and there is something very wrong with the global financial system," said Arthur Micheletti, chief economist and investment strategist at

Bailard Biehl & Kaiser

in Foster City, Calif. "I think you're getting a nice rally here to sell into."

In the 14 bear markets this century, Micheletti noted, there have been five rallies of 5% to 10% and one greater than 10%. "We've seen a couple of 5% rallies and now a 10% rally -- this is pretty typical bear-market behavior," he said, and thus remains overweighted in bonds, with a 30% allocation. The remainder of the portfolio includes 35% in U.S. equities, 15% in international stocks, 7% in international bonds and the remainder in cash.

The reason the Fed's action last week hasn't emboldened the strategist is a belief things are different this time, but not for the better.

"Typically, you don't fight the Fed when you're coming out of recession,

but you've got to be really wary about rules of thumb in an environment where we're talking about deflation and not inflation," he said. "It's a different economic cycle. If it is something different this time -- and I think it is -- it's that there's been a global financial shock and the Fed is scared to death."

The prospect for recession has been reduced by the Fed action, he said, but "the bottom line is, the problems for the U.S. economy are coming from overseas, and I'm not sure how much U.S. easing can resolve those problems." Should the economy contract in the coming year, Micheletti pegs "fair value" for the S&P 500 at 705. In a "soft-landing" scenario, the index could fall as low as 902, while 1063 is the target if growth is sustained, suggesting the index is currently "a little ahead of the game."

Among other indices, the

Dow Jones Transportation Average

was up 38, or 1.4%, to 2819; the

Dow Jones Utility Average

had lost 2 to 308; and the

American Stock Exchange Composite Index

was up 2 to 606.

The price of the 30-year Treasury bond was lately down 2/32 to 108, its yield at 4.98%. (For more on the fixed-income market, see today's midday

Key Numbers.)

Monday's Midday Movers


Heather Moore
Staff Reporter

As noted above, making many feel somewhat steadier was an onslaught of Monday-morning merger news:

  • First Brands was up 12 3/8, or 52.4%, to 36 after Clorox agreed to buy it for $2 billion. Separately, Clorox reported first-quarter earnings of 81 cents a share, beating the 12-analyst view by a penny and up from the year-earlier 71 cents. Clorox was off 1 5/8 to 98 1/8.
  • Fred Meyer was down 4 1/4, or 8.7%, to 44 3/4 after Kroger said it will buy the company in a deal valued at $13 billion, including debt. Meanwhile, Kroger reported third-quarter earnings of 47 cents a share, beating the 11-analyst consensus of 44 cents and the year-ago 37 cents. Kroger was down 2 7/16, or 5%, to 46 5/16.
  • Greyhound was up 13/16, or 16.7%, to 5 11/16 after Canada's Laidlaw said it's buying the company in a deal valued at $470 million in stock and cash and $180 million in debt. Laidlaw was off 1/4 to 9 7/16.
  • McKesson was down 10 7/16, or 11.8%, to 78 1/4 after yesterday agreeing to buy medical software company HBO for about $14.5 billion. HBO was down 2 7/16, or 8.3%, to 27 1/16.
  • Remote access provider Shiva was up 1 13/32, or 34.1%, to 5 19/32 after Intel agreed to buy it for $6 a share. Intel was up 13/16 to 84 1/2.

In other news:

Applied Graphics


was up 1 1/4, or 15.9%, to 9 5/32 even after

Merrill Lynch

downgraded it to accumulate from buy and

Goldman Sachs

dropped the stock to market outperform from its recommended list. The company lost almost half its value Friday after issuing a third-quarter profit warning.


(RNWK) - Get RealNetworks, Inc. Report

was up 3, or 8.6%, to 37 31/16 after announcing its


software will be bundled with




version 4.5 software when it begins shipping this week, marking RealPlayer's third major distribution deal in four weeks. Netscape was up 2 1/16, or 10.2%, to 22 5/16.

Earnings movers

Bank of New York

(BK) - Get Bank of New York Mellon Corporation Report

was up 3/8 to 31 1/8 after posting third-quarter earnings of 39 cents a share, in line with the 21-analyst estimate and above the year-earlier 34 cents.


(BC) - Get Brunswick Corporation Report

was up 11/16 to 18 after recording third-quarter earnings of 46 cents a share, in line with the seven-analyst view and a repeat of the year-ago figure.

CNF Transportation

(CNF) - Get CNFinance Holdings Ltd. Report

was up 1 5/16 to 29 5/16 after announcing third-quarter earnings of 78 cents a share, 4 cents ahead of the 12-analyst outlook and above the year-ago 70 cents.

Crossmann Communities


was up 2 1/8, or 12.8%, to 18 7/8 after recording third-quarter earnings of 85 cents a share, 3 cents above the three-analyst estimate and above the year-ago 64 cents.

First Republic Bancorp

(FRC) - Get First Republic Bank Report

was up 1 13/16, or 7.6%, to 25 9/16 after reporting third-quarter earnings of 54 cents a share, a penny higher than the three-analyst prediction and above the year-ago 45 cents.

J.P. Morgan was up 2 1/4 to 91 3/4 despite posting third-quarter earnings of 58 cents a share, far short of the 13-analyst forecast for 81 cents and the year-ago $1.96. The bank said it was hurt by market volatility, wider credit spreads, lower asset values and withdrawal of investors from many markets.


(LEA) - Get Lear Corporation Report

was down 8, or 19.7%, to 32 5/8 after reporting third-quarter earnings of 32 cents a share, in line with the 17-analyst view but down from 52 cents a year earlier.

Pre Paid Legal


was up 3 1/8, or 15.5%, to 23 1/4 after announcing third-quarter earnings of 32 cents a share, 1 cent above the three-analyst view and above the year-ago 22 cents.



was down 1 1/4 to 30 3/4 after reporting third-quarter earnings of 50 cents a share, 2 cents short of the 15-analyst expectation and below the year-ago 68 cents.



was up 1, or 8.3%, to 13 after reporting fourth-quarter earnings of 27 cents a share, on target with the three-analyst view and above the year-ago 17 cents.