Stocks End Higher as Oil Slips

Investors focused on lower crude prices and M&A headlines involving GE and CBS, brushing aside a batch of moderately weaker economic reports

by David Bogoslaw

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Stocks ended higher on Thursday, with investors appearing to gain conviction as oil prices dropped while shrugging off moderately weaker economic data and weaker earnings reports that offset a pop in M&A activity.

On Thursday, the Dow Jones industrial average closed 94.28 points, or 0.73%, higher at 12,992.66. The broader S&P 500 index was up 14.91 points, or 1.06%, at 1,423.57. The tech-heavy Nasdaq composite index rose 37.03 points, or 1.48%, to 2,533.73.

Buying ahead of Friday's options expirations also lifted the market, S&P MarketScope said. On the New York Stock Exchange, 22 stocks gained in price for every nine that were lower, while on the Nasdaq the ratio was 18-11 positive.

CNET Networks Inc. (CNET), the Internet news provider, agreed to be acquired by CBS Corp. (CBS) in a $1.8 billion deal that will give CNET shareholders $11.50 in cash for each CNET share they own. Standard & Poor's downgraded the stock to hold from buy, but the shares leaped 43.5% higher.

Billionaire activist investor Carl Icahn confirmed that he's launching a proxy battle to oust Yahoo's (YHOO) board of directors after the technology company's "irrational" actions toward Microsoft's (MSFT) takeover bid. In a letter to Yahoo Chairman Roy Bostock, Icahn said he is nominating 10 directors, including himself. Yahoo shares were up 1.8%.

Speaking at a Chicago Federal Reserve conference Thursday, Fed chairman Ben Bernanke reiterated his recommendation that banks continue to raise capital and need to have a liquidity cushion for challenging times such as the current credit crunch. Bernanke said many banks aren't prepared to bring off-balance sheet investments onto their books if necessary.

Barry Ritholtz, chief market strategist at Ritholtz Research & Analytics in New York, says he doesn't believe this run to the upside in equity markets will last, even though there's been a firm bid beneath the market for quite some time.

"I think we still have more to run, but I don’t believe we’ve missed the recession or that the credit crunch is in the ninth inning or that the worst of the housing market has past," he says.

Leading the day's economic data, U.S. industrial production fell 0.7% in April, below the median, while capacity utilization eased to 79.7% in April from 80.4% in March.

The headline May Empire State index fell to -3.2, lower than the anticipated 0.6 and down from 0.6 in April. The March headline was the lowest in the survey's seven-year history, but the notable rebound in April, and similar level in May, has left the index well above that level. This leaves the region's manufacturing sector continuing to perform better than what would be expected during a typical recession, Action Economics said.

The Philadelphia Fed index rose to -15.6 in May from -24.9% in April, better than the rise to -18.0 that was expected. While this survey continues to point to manufacturing contraction -- though at a slower pace than in prior months -- improvement in the subindexes in May puts the report more in line with other factory surveys, said John Ryding, chief U.S. economist at Bear Stearns & Co., in an email note. "The price-related subindexes point to significant inflation pressures from manufacturing," he added.

Initial jobless claims rose 6,000 to 371,000, slightly higher than the expected 370,000 level, in the week ended May 10. Initial claims have revealed volatile swings over the last two months, although figures over the last two weeks have been fairly close with the April average of 365,000. Continuing claims jumped 28,000 to 3.06 million, which leaves this series hovering at a new four-year high.

The National Association of Realtors said that homebuilder sentiment continued to weaken in May, with the NAHB/Wells Fargo Housing Market Index falling one point to 19 from 20 in April and just one point above the record low of 18 reached in December 2007.