Bloomberg News

U.S. Stocks Rise to Records Amid Small-Cap Rally, Deals

June 09, 2014

U.S. stocks rose, with benchmark indexes extending records, as small-cap shares rallied and Family Dollar Stores Inc. advanced with Analog Devices Inc. amid deals activity.

Family Dollar jumped 13 percent as a filing showed Carl Icahn has amassed a 9.4 percent stake. Analog Devices jumped 5 percent after agreeing to buy a chipmaker for about $2 billion. Idenix Pharmaceuticals Inc. more than tripled after Merck & Co. agreed to buy the drugmaker for $3.9 billion. Tyson Foods Inc. fell 6.5 percent after the company said it made a binding offer for Hillshire Brands Co. Apple Inc. traded at $93.70, reflecting a seven-for-one stock split.

The Standard & Poor’s 500 Index (SPX) added 0.1 percent to 1,951.27 at 4 p.m. in New York, capping its seventh record close in the past eight sessions. The Dow Jones Industrial Average gained 18.82 points, or 0.1 percent, to a record 16,943.10. The Russell 2000 Index of small companies climbed 0.9 percent for a fourth day of gains. About 5.3 billion shares changed hands on U.S. exchanges today, 15 percent below the three-month average.

“There’s a fair amount of skepticism over if we are at peak valuations,” Michael Arone, the Boston-based chief investment strategist at State Street Global Advisors’ U.S. Intermediary Business, said by phone. State Street Corp. oversees $2.4 trillion in assets. “My view is the Goldilocks economy is back -- not too cold, not too hot, but just right. What we’re starting to see is companies starting to do capital expenditures and M&A to invest in their businesses.”

Equity Records

The S&P 500 advanced 1.3 percent to a record 1,949.44 last week as the European Central Bank lowered interest rates and a report showed that the U.S. economy created more jobs than expected. The index has continued to climb to records even as the U.S. economy contracted for the first time in three years during the first quarter.

Federal Reserve officials are watching the labor market as they move to complete their bond-purchase program late this year and start considering the timing of the first interest-rate increase since 2006. Central-bank stimulus has helped propel the S&P 500 higher by as much as 188 percent from its bear-market low in March 2009.

The ECB’s stimulus sent European bond yields to all-time lows and helped boost the region’s equities to near the highest in six years.

The U.S. stocks benchmark has rebounded 7.5 percent since a selloff in small-cap and Internet shares spread to the broader market, dragging the index to a two-month low in April. The measure trades at 16.5 times the projected earnings of its members, up from a multiple of 14.8 at the start of February.

Small Caps

The Russell 2000 has advanced 4.4 percent in the past four sessions to the highest since April 3. The gauge has rallied 7.5 percent from a February low and is now up 1 percent in 2014.

The Chicago Board Options Exchange Volatility Index (VIX) climbed 3.9 percent to 11.15. The gauge, known as the VIX, fell 5.9 percent last week to 10.73, the lowest level since February 2007.

“Growth is slow, GDP is slow, we have rate cuts all around, and we’re banking that all-time highs are going to get better,” Keith Rosendahl, chief investment strategist at Venice, Florida-based research firm Interactive Portfolio, LLC, said in a phone interview. “With the merger activity, I think people are trying to buy growth.”

Six of the 10 main S&P 500 groups advanced today, with industrial shares adding 0.6 percent to pace gains. Utility stocks lost 0.7 percent.

Dollar Stores

Family Dollar jumped 13 percent to $68.62, the highest this year. Icahn and his affiliates bought 10.7 million shares and options for about $265.8 million, according to a June 6 regulatory filing. The billionaire may push for operating changes and ask the company to explore strategic alternatives, as well as potentially seeking board seats, according to the filing.

Dollar General Corp. (DG:US) rallied 7.4 percent to $62.25. Jefferies Group LLC raised its rating on the stock to buy from hold after Icahn’s purchase of Family Dollar shares. The move may lead to a merger with Dollar General, Jefferies said. Dollar Tree Inc. gained 0.7 percent to $55.50, a seventh straight gain that is the longest streak since November.

Hillshire jumped 5.3 percent to $62.06, while Tyson slid 6.5 percent to $37.50. Tyson has made a unilaterally binding offer of $63 a share for the maker of Jimmy Dean sausages and Ball Park hot dogs, it said in a statement. Pilgrim’s Pride Corp. dropped 6.7 percent to $24.51 after saying it withdrew a competing proposal.

Hepatitis Drugs

Idenix Pharmaceuticals soared 229 percent to $23.79 after Merck said it has agreed to acquire the maker of experimental Hepatitis C drugs for $24.50 a share in cash, or about $3.85 billion. Merck, the second-biggest U.S. drugmaker, gained 0.2 percent to $57.94.

Gilead Science Inc., the developer of Sovaldi, a competing hepatitis C treatment, fell 4.1 percent to $79.01.

Analog Devices rose 5 percent to $55.31. The semiconductor manufacturer agreed to acquire Hittite Microwave Corp. for about $2 billion. The purchase price of $78 a share is 29 percent more than Hittite’s closing price on June 6. Hittite rose 29 percent to $77.90.

Morgan Stanley added 0.1 percent to $31.98. The bank agreed to sell its stake in oil-transportation company TransMontaigne Inc. to NGL Energy Partners LP for $200 million as part of the bank’s effort to reduce capital used by the commodities business. NGL added 2.2 percent to $42.86.

Apple Split

Apple shares climbed 1.6 percent to $93.70. The shares closed Friday at $645.57. Apple said on April 23 it was doing the split so shares would be available to a wider pool of investors.

NeuStar Inc. sank 8.4 percent to $24.43. An e-mail marked confidential that was posted briefly on June 6 on the Federal Communications Commission website indicated the agency may transfer a contract with Neustar to Ericsson AB. The FCC has yet to award the new five-year contract for telephone-number switching, a service that NeuStar has handled since 1997.

Wynn Resorts Ltd. fell 2.9 percent to $199.05. Wynn Macau Ltd., a resort owned by the Las Vegas-based company and traded on the Hong Kong Stock Exchange, was downgraded to hold from buy at Deutsche Bank by equity analyst Karen Tang.

To contact the reporters on this story: Oliver Renick in New York at orenick2@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeremy Herron, Will Hadfield

U.S. stocks rose, with benchmark indexes extending records, as small-cap shares rallied and Family Dollar Stores Inc. advanced with Analog Devices Inc. amid deals activity. June 9 (Bloomberg) -- Gina Martin Adams, an equity strategist at Wells Fargo Securities LLC, talks about investment strategy and financial markets. She speaks with Tom Keene, Alix Steel and Adam Johnson on Bloomberg Television's "Surveillance." Warburg Pincus & Co.'s William Janeway also speaks. (Source: Bloomberg)

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Companies Mentioned

  • DG
    (Dollar General Corp)
    • $60.28 USD
    • -0.83
    • -1.38%
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