Stocks made a strong move higher Monday as a new spate of merger activity and a surprising rise in home sales restored investors’ confidence in the economy and eased fears of inflation and higher interest rates.
The news of Valero Energy Corp.’s $8 billion takeover of oil refiner Premcor Inc. — creating the largest oil refiner in North America — reassured investors that corporate America was still willing to make large deals despite economic uncertainty.
A climb in home sales also lifted investors’ spirits, with the unexpected jump illustrating that the higher interest rates by the Federal Reserve — designed to keep inflation in check — were not hurting on home purchases. The National Association of Realtors said home sales rose to an annualized rate of 6.89 million in March, up from 6.7 million in February.
“The housing sales report was big because there were a number of signs that the economy might be weakening, and this disputes that,” said Ken Tower, chief market strategist for Schwab’s CyberTrader. “There’s still a lot of work to do to really move the market forward, but this is a good start.”
The Dow Jones industrial average rose 84.76, or 0.83 percent, to 10,242.47.
Broader stock indicators also moved sharply higher. The Standard & Poor’s 500 index was up 9.98, or 0.87 percent, at 1,162.10, and the Nasdaq composite index gained 18.59, or 0.96 percent, to 1,950.78.
The bond market was little changed after last week’s gains, with the yield on the 10-year Treasury note holding steady at 4.25 percent from late Friday. The dollar rose against most major currencies, while gold prices fell.
Analysts noted that volume was relatively low compared to the last few weeks of heavy trading, and said some investors might prefer to sit out of the market until next week, when the Fed’s next decision on interest rates is due. Wall Street is hoping the Fed will give a bullish forecast for the economy, which would continue to allow for gradual rate hikes that corporate America can easily digest.
“The real key is interest rates,” said Russ Koesterich, senior portfolio manager at Barclays Global Investments in San Francisco. “We need to get back to that Goldilocks economy, where we’re growing enough to keep things going but keeping inflation at bay and interest rate hikes measured. We do that, we’ll see stocks improve.”
Advancing issues outnumbered decliners by nearly 5 to 2 on the New York Stock Exchange.
The Russell 2000 index of smaller companies was up 6.91, or 1.17 percent, at 596.44.
Overseas, Japan’s Nikkei stock average rose 0.25 percent. In Europe, Britain’s FTSE 100 closed up 0.32 percent, France’s CAC-40 climbed 0.32 percent for the session, and Germany’s DAX index gained 0.57 percent.