Dow Hits New Record on Deal News

Deals surrounding Citigroup and Bausch & Lomb and news of Buffett's recent bets kept buyers around. Housing data was mixed, and industrial production rose

by Karyn McCormack

The Dow Jones industrial average raced ahead to a new record Wednesday thanks to deal news and purchases made by Warren Buffett. The latest housing data was mixed, while industrial production picked up.

The Dow Jones industrial average jumped 103.69 points, or 0.77%, to a new high of 13,487.53. Citigroup (C) led the way, up 4% on news that hedge fund manager Edward Lampert bought an $800 million stake. Johnson & Johnson (JNJ) gained 2% on word that Warren Buffett's Berkshire Hathaway (BRK.A) doubled his stake.

The broader S&P 500 index was up 12.95 points, or 0.86%, to 1,514.14 -- a new six-and-a-half year high. The tech-heavy Nasdaq Composite index gained 22.13 points, or 0.88%, to 2,547.42.

"There has been quite a bit of good news lately -- including share buybacks and M&A activity," says Brian Gendreau, investment strategist at ING Investment Management in New York. He notes that this week a lot of private equity money is coming into the market. "People are saying we're looking for more of the same."

While Gendreau likes the earnings picture and valuations for large-cap U.S. stocks, he's worried about some technical indicators. The S&P 500 is trading a little more than 8% above its 200-day moving average, the same level where it was at Feb. 27 when the market had a big one-day drop, he says. He notes that margin debt is back to its peak levels reached in March 2000, and the volatility index, or VIX, is at a low level of 14 - a sign of a lot of complacency, he says. He also thinks China's market is getting "very lofty."

Some mixed news on housing was released Wednesday. April housing starts surprisingly rose 2.5%, but building permits plunged 8.9%, the worst slide in 17 years, reports Action Economics. Meanwhile, there was good news for industrial production, which rebounded a hefty 0.7% in April from a downwardly revised 0.3% decline in March, and capacity utilization rose to 81.6% from a revised 81.2% in March.

Reports coming Thursday include the Philadelphia Fed index, leading indicators, and jobless claims.

M&A was in the spotlight once again Wednesday. Bausch & Lomb (BOL) says it will be acquired by affiliates of Warburg Pincus in a deal valued at about $4.5 billion, including about $830 million of debt, or $65 per share in cash.

Agile Software (AGIL) agreed to be acquired by Oracle (ORCL) for $8.10 per share cash, or about $495 million. Agile sees fourth-quarter revenue of $37-$38 million and non-GAAP EPS of 4-6 cents.

Some health care stocks got a boost after Warren Buffett's Berkshire Hathaway (BRK.A) said it nearly doubled its stake in Johnson & Johnson (JNJ) and bought more shares of French drugmaker Sanofi-Aventis in the first quarter. The holding company also said it made an investment in WellPoint (WLP).

Railroads also rose after Berkshire revealed stakes in Norfolk Southern (NSC) and Union Pacific (UNP).

In earnings news, Hewlett-Packard (HPQ) shares were higher in after-hours trading after the company reported better-than-expected earnings.

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