Stocks Hit 5-Year High on M&A Deals

NEW YORK ( TheStreet) -- Major U.S. stock averages rose Tuesday, with the benchmark S&P 500 hitting a five-year high, as investor sentiment improved on yet another set of deals headlines, this time about a possible merger of OfficeMax ( OMX) and Office Depot ( ODP).

Investors remained concerned, however, as the U.S. sequestration deadline loomed. There are now less than two weeks left before the next fiscal cliff of automatic spending cuts kicks in March 1.

President Barack Obama on Tuesday urged Congress to find a way to avert the sequester, emphasizing the negative effect it could have on the economy and job creation.

"If Congress allows this meat-cleaver approach to take place, it will jeopardize our military readiness, it will eviscerate job creating investments, and education, and energy, and medical research ... it doesn't make those distinctions," he said.

The Dow Jones Industrial Average closed up 54 points, or 0.4%, to 14,036. The blue-chip index began the session up nearly 7% so far in 2013.

Breadth was positive, with winners outnumber losers 22 to eight. Top gainers included Pfizer ( PFE), General Electric ( GE), Cisco ( CSCO) and Merck ( MRK).

UnitedHealth ( UNH), Alcoa ( AA) and Wal-Mart ( WMT) were among the laggards.

UnitedHealth shares shed 1.1% and Humana ( HUM) plunged 6.4% as the Centers for Medicare and Medicaid Services proposed worse-than-expected 2014 Medicare Advantage rates.

The S&P 500 added 11 points, or 0.7%, to 1,531. The Nasdaq tacked on 22 points, or 0.7%, to 3,214.

Most sectors in the broader market, with the exception of basic materials, climbed higher, led by conglomerates, consumer non-cyclicals, energy and utilities.

Volumes totaled 3.72 billion shares on the New York Stock Exchange and 1.84 billion shares on the Nasdaq. Advancers were outpacing declines by a ratio of 2.2-to-1 on the Big Board and 2.1-to-1 on the Nasdaq.

Ed Yardeni, chief investment strategist at Yardeni Research, said despite the U.S. fiscal worries, the rise in payroll tax receipts in January, and jitters ahead of the Italian elections, there has been an "impressive" rally in stock prices so far this year amid ongoing deals headlines.

"Why hasn't the market sold off in anticipation of these potentially unsettling events? The recent wave of mergers and acquisitions is a reminder that corporations and private-equity investors have lots of cash available for such deals," said Yardeni.

He noted that, in the past, the bull market since March 2009 has mostly been driven by corporations using their abundant cash flows to buy back shares and pay out more dividends.

"Now they may be about to add M&A to their bullish activities," said Yardeni.

Gold for April delivery fell $5.30 to settle at $1,604.20 an ounce at the Comex division of the New York Mercantile Exchange, while April crude oil futures closed up 69 cents at $97.10 a barrel.

The benchmark 10-year Treasury was off 7/32 to boost the yield to 2.033%. The dollar was down 0.19%, according to the U.S. dollar index.

The National Association of Home Builders' housing market index for February registered a read of 46, down from 47 the prior month and below the expected print of 48.

Cooper Howes, an economist at Barclays, said that, despite the decline, the index remains above its six-month average of 44 and is 18 points higher than its year-earlier level.

"We do not view the February drop as evidence of a slowing in the housing-market recovery and expect that other indicators such as starts, sales and prices will continue to push higher over the coming months," said Howes.

About 78% of S&P 500 companies have reported fourth-quarter earnings, according to Thomson Reuters.

Of the 388 companies in the S&P 500 that have reported earnings to date for the quarter, 70% have reported earnings above analysts' expectations, Thomson Reuters reported. The report said that 66% of companies have reported revenue above analysts views.

OfficeMax and Office Depot are in advanced talks to merge, people familiar with the matter told The Wall Street Journal. Officemax shares soared 21% and Office Depot shares surged 9.4% on Tuesday.

Staples ( SPLS) shares jumped 13% as the company's peers captured merger headlines.

Sealed Air ( SEE) shares advanced 9% after the company posted better-than-expected quarterly results and said it is committed to increasing profitability and aggressively managing its cost structure. The company said it continues to operate in a challenging economic environment, particularly in Europe.

Express Scripts ( ESRX) shares rose 2.6% after the pharmacy-benefit manager booked better-than-expected fourth-quarter earnings of $1.05 a share and stronger-than-anticipated sales, getting a boost from increased generic drugs usage and its purchase last year of Medco Health Solutions.

Herbalife ( HLF), at the center of a public fight between Carl Icahn and Bill Ackman, is expected to post fourth-quarter earnings Tuesday of $1.03 a share on revenue of $1.05 billion. Shares were up 2.6% on Tuesday.

Medtronic ( MDT) posted fiscal third-quarter profit of 93 cents a share on revenue of $4 billion, versus the average analyst expectation for profit of 91 cents a share on revenue of $4.03 billion. The company reiterated its fiscal full-year revenue outlook and earnings per share guidance. Shares fell 2.8%.

Wynn Resorts ( WYNN) shares lost 2.1%. The casino operator got court approval to move ahead with a meeting this week to remove dissident shareholder Kuzuo Okada from its board.

Sony ( SNE) ADRs popped 2.2% amid expectations that the company will reveal its PlayStation 4 this week.

-- Written by Andrea Tse and Joe Deaux in New York

>To contact the writer of this article, click here: Andrea Tse.

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