Stocks Wobble at the Flat Line - TheStreet

Stocks Wobble at the Flat Line

Early gains from encouraging Bank of America earnings and biotech merger taper as investors weigh bearish forward-looking indicators from the Conference Board and new study results related to Merck and Schering-Plough.
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Updated from 12:23 p.m. EDT

After opening higher, U.S. stocks cautiously meandered about the baseline Monday as investors kept an eye on unusual moves from a couple of big-time pharmaceutical companies, an increase in oil prices and bearish forward-looking indicators from the Conference Board.

The

Dow Jones Industrial Average

was losing 15 points at 11,481, and the

S&P 500

lost about half a point to 1261. The

Nasdaq

shed 2 points to 2281.

Providing a drag for the major indices,

Merck

(MRK) - Get Report

and

Schering-Plough

(SGP)

, originally slated to report Monday morning,

delayed their statements

until after the market close to provide an update from a study on their joint venture drug, Vytorin.

The results of the Vytorin study identified a potential cancer risk in certain patients and said the drug was no more effective than a placebo at reducing the risk of major cardiovascular events. Merck lost 3.9%, and Schering-Plough tumbled 11%.

Elsewhere in pharmaceuticals, Swiss pharmaceutical company

Roche

made a

$43.7 billion offer

for the rest of

Genentech

(DNA)

. Roche is already a 56% shareholder in the maker of cancer drug Avastin. Genentech shares jumped 13% on the news.

In technology,

Yahoo!

(YHOO)

was another headliner, as the company

agreed

to give investor Carl Icahn, who wanted the Internet portal owner to work a deal with

Microsoft

(MSFT) - Get Report

, a seat on its board. Yahoo! stock was edging downward.

XM Satellite Radio

(XMSR)

said it added 322,000 new subscribers in the second quarter, a 17% year-over-year increase. The company also announced a $400 million offering of senior notes to help refinance debt pending an intended merger with

Sirius Satellite Ratio

(SIRI) - Get Report

. Shares of both XM and Sirius were on the rise.

In the earnings department, Bank of America posted

second-quarter earnings

of $3.41 billion, or 72 cents a share, down from $5.76 billion, or $1.28 a share, in the same quarter last year. Revenue, however, rose and topped expectations, as did profits. BofA also believes it will make money this year from the Countrywide Financial takeover. Shares were climbing 6.5%.

"Listless would be a good word" to describe today's action, said Paul Nolte, director of investments for Hinsdale Associates. After last week's rise for U.S. stocks, the market is in a digestion period that could carry over until tomorrow, he said.

Although financial firms are beating earnings expectations, their absolute results are not as encouraging, said Nolte. "We're looking for more evidence that the worst is over for the financials," he said.

The earnings from Bank of America, combined with solid performances from Wells Fargo and JPMorgan last week, constitute a bullish sign for the financials, said Todd Clark, director of trading at Nollenberg Partners. "Those were the three that were supposed to have skeletons in the closet," he said. "The takeaway is extremely positive, given that these stocks were priced for certain disaster as recently as last Monday."

As for the prospects of more merger deals aiding the market, Nolte pointed out that Roche's buying in Genentech and InBev's purchase of

Anheuser-Busch

(BUD) - Get Report

both represent foreign firms buying U.S. companies, which is less encouraging for investors than if U.S. companies were joining together. He said recent acquisitions are a function of the dollar and the U.S.'s position in the economic cycle compared with overseas markets.

After the close, traders will get results from

Dow

component

American Express

(AXP) - Get Report

, as well as

Apple

(AAPL) - Get Report

and

Texas Instruments

(TXN) - Get Report

.

Away from earnings, government-sponsored entity

Freddie Mac

(FRE)

, hamstrung by the credit crisis, may stop buying as many home loans and bonds backed by housing debt in an effort to raise capital.

New

Securities and Exchange Commission

regulations governing so-called naked short sales of financial-services firms including Freddie and sister firm

Fannie Mae

(FRE)

went into effect Monday. Shares of both companies were climbing.

Over in the commodities area, crude oil was gaining $1.70 to $130.58, as Tropical Storm Dolly threatened the Gulf of Mexico and tensions between Iran and the U.S. failed to abate over the weekend. Gold for August delivery closed up $5.10 at $963.10.

"I don't think that higher energy or lower energy is the main driver of the market," said Nolte. He said that

Wells Fargo's

(WFC) - Get Report

earnings beat was more important than a decline in energy prices for last week's rally in equities.

Looking at economic data, the Conference Board's leading index fell 0.1% in June, a move that was in line with expectations. The May leading indicators index was revised to a 0.2% decline from an increase of 0.1%.

Long-dated treasuries were slightly lower. The 10-year was down 2/32 in price, yielding 4.09%, and the 30-year was off 6/32, yielding 4.66%. The dollar was slipping against the euro and the yen, but stronger vs. the pound.

Abroad, European indices were mostly higher, while the Asian markets were mixed. The FTSE in London and the DAX in Frankfurt were both advancing, as was the Hang Seng in Hong Kong. Japan's Nikkei edged downward.