Stocks rebound after buyout news
Stocks rebounded Monday after a fresh round of buyout news offered evidence that Wall Street’s penchant for dealmaking hasn’t disappeared.
Better-than-expected profit news from Merck & Co. also boosted the mood on Wall Street, helping it partially recover from a steep sell-off Friday that was triggered by some weak earnings reports and worries about souring subprime loans.
The stock market pushed those concerns aside Monday after Transocean Inc., the world’s largest offshore drilling contractor, and rival GlobalSantaFe Corp. said they agreed to merge. The combined company will have a market value of about $53 billion.
The turnaround from Friday’s retrenchment demonstrates the market’s resiliency, but also raises questions of whether the short-lived nature of most of this year’s pullbacks means stocks are rising on a rickety foundation, said Ted Aronson, a partner at Aronson Johnson Ortiz in Philadelphia. Like many investors, he sees retreats as a healthful break for ascendent markets.
“We had a correction for a day. It’s amazing. I think the market has gone too far, too fast. With that said, there is no doubt that the market is just amazingly strong,” Aronson said.
The Dow Jones industrial average rose 92.34, or 0.67 percent, to 13,943.42, thanks in large part to a 6.75 percent rise in Merck’s shares. At times during the session, the Dow was up more than 100 points.
Broader stock indicators also advanced. The Standard & Poor’s 500 index rose 7.46, or 0.49 percent, to 1,541.56. The technology-heavy Nasdaq composite index showed more modest gains, rising 2.98, or 0.11 percent, to 2,690.58.
Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.96 percent from 4.95 percent late Friday. Bond prices move opposite yields. The dollar was mixed against other major currencies after hitting a new record low against the euro and a new 26-year low against the British pound. Gold prices fell.
Light, sweet crude fell 90 cents to $74.89 per barrel on the New York Mercantile Exchange on suggestions that OPEC may increase its output.
The resumption of the market’s climb comes on a day absent any major economic news and appeared to at least temporarily quiet some concerns that a souring of subprime loans, those made to borrowers with poor credit, will upend the market’s advance. Uneasiness over bad loans and a resulting tightening of credit standards could stanch the huge flow of capital that has enabled much of the market-advancing buyout activity in recent years.
“All markets have risk. It’s almost as if the market says there’s no risk,” Aronson said, citing his concerns about subprime loans. “Long-term I’m optimistic but it’s one thing to be optimistic and it’s another thing to believe in the tooth fairy.”
On Friday, lackluster profit reports from Caterpillar Inc. and Google Inc. raised concerns about the overall strength of corporate earnings, and were in part responsible for a nearly 150-point drop in the Dow.
Declining issues outnumbered advancers by about 8 to 7 on the New York Stock Exchange, where consolidated volume came to 3.09 billion shares, down from 3.65 billion on Friday.
The Russell 2000 index of smaller companies fell 0.82, or 0.10 percent, to 835.62.
Overseas, Japan’s Nikkei stock average rose 0.01 percent, while Hong Kong’s Heng Seng Index rose 0.32 percent and the often-volatile Shanghai Composite Index rose 3.81 percent. Britain’s FTSE 100 rose 0.60 percent, Germany’s DAX index rose 0.88 percent, and France’s CAC-40 advanced 0.87 percent.