Stocks finished mixed Tuesday amid some large merger deals. Traders were bracing for tomorrow's Federal Reserve decision on interest rates and whether to change its policy language.
The Federal Reserve kicked off its two-day policy meeting today. The Fed is likely to leave the key lending rate in the 0-0.25% range, and Wall Street is waiting to see if the FOMC changes the language in its statement Wednesday afternoon. There has been speculation the Fed might hint at plans to escape stimulus programs, but many observers do not think that will be included in tomorrow's statement, says S&P.
Transportation stocks got a boost Tuesday from news that Berkshire Hathaway (BRKB) said it will acquire the 77% of Burlington Northern Santa Fe Corp. (BNI) it doesn't already own in a cash and stock deal that values the railroad company at $34 billion, marking Warren Buffett's largest acquisition. The deal values Burlington Northern at $100 a share, a 31% premium to Monday's closing price. Berkshire Hathaway also announced a 50-for-1 stock split for its Class B shares.
After the market close Monday, Black & Decker (BDK) agreed to be acquired by Stanley Works (SWK) in a deal valued at about $4.5 billion. Terms: 1.275 SWK shares per each BDK share held. Upon closing, which is expected in the first half of 2010, Stanley shareholders will own about 50.5% of the equity of the combined company and Black & Decker shareholders will own approximately 49.5%. The company sees the deal adding to EPS by about $1.00 per share by year three.
On Tuesday, the 30-stock Dow Jones industrial average finished down 17.53 points, or 0.18%, to 9,771.91. The broad Standard & Poor's 500-stock index edged up 2.53 points, or 0.24%, to 1,045.41. The tech-heavy Nasdaq composite index rose 8.12 points, or 0.40%, to 2,057.32.
Treasuries moved lower, with the 10-year note off 16/32 to 101-08/32 for a yield of 3.478%. Commodities rallied, as gold futures surged $32.10 to $1,086.10 an ounce on news of a sale of 200 tons of IMF gold to India. Crude oil rose $1.29 to $79.42 1.29 per barrel.
In economic news Tuesday, U.S. factory goods orders rose 0.9% in September, after dropping 0.8% the month before. However, the increase was below the 1.0% gain markets had expected. Factory orders have now increased in five of the last sixth months, but are down 14.5% over last September, noted Beth Ann Bovino, senior economist at Standard & Poor's.
October vehicle sales are expected to come in at a 10.4 million unit rate (consensus estimate was 9.8 million units). The data came in stronger than expected, given concerns that we would continue to see sales hurt by a pull-ahead of the "cash-for-clunkers" binge in July and August, says Action Economics.
U.S. stocks were pressured in the morning following fresh strife in the banking sector in Europe that had rocked stocks overnight, reports Action Economics. UBS (UBS) was impacted by accounting write-offs that contributed to a fourth consecutive quarterly loss near $500 million, while a shakeup and branch-asset liquidation at Royal Bank of Scotland Group (RBS) and Lloyds Banking Group was mandated by the European Union after another 31.3 billion pounds ($51 billion) injection from the United Kingdom. "This boomeranged back on the U.S. financial sector, which had already been jumpy following yesterday's New York Fed meetings," says Action Ecnomics.
Investors continue to worry about the strength of the economic recovery. S&P expects economic growth to remain positive, but fourth quarter growth is likely to rise only half as much as third quarter, according to S&P MarketScope. Following the Fed announcement on Wednesday afternoon, investors will focus on Friday's employment report. Economists expect a drop of 173,000 payrolls. "Yet, the big 263,000 September payroll drop has boosted downside market risk for Friday, as another under-performance would raise broad concerns about the sustainability of the recovery," says Action Economics.
On Tuesday, railroad stocks, such as CSX Corp. (CSX), Kansas City Southern (), Norfolk Southern () and Union Pacific (), rallied on news of Buffett's deal to acquire Burlington Northern.
Among other corporate news, Johnson & Johnnson (JNJ) said it will cut about 6%-7% of its global workforce as part of a restructuring that JNJ expects to generate annual pre-tax cost savings of $1.4-$1.7 billion in 2011, when it's fully completed. In connection with the restructuring, J&J expects to record a fourth quarter 2009 pre-tax charge of $1.1-$1.3 billion. J&J also confirmed its 2009 EPS guidance of $4.54-$4.59, which excludes impact of special items such as restructuring charges.
Mastercard (MA) posted $3.45 third quarter EPS (excluding special items), vs. $1.48 loss a year ago, on 2.0% revenue rise. The Street was looking for $2.94 EPS.
Royal Carribbean Cruises Ltd. (RCL) posted $1.07, vs. $1.92 a year ago, third quarter EPS on 15% revenue drop. It sSees about $0.05 loss in fourth quarter and $0.70 2009 EPS.
Viacom (VIA.B) posted $0.69, vs. $0.55, third quarter adjusted EPS from continuing operations as lower operating expenses offset 2.7% revenue decline.
Medco Health Solutions (MHS) reported $0.75, vs. $0.63, third quarter EPS (excluding amortization of intangible assets), on 18% revenue rise. The Street was looking for $0.72. It narrowed 2009 EPS range to $2.80-$2.82 (excluding amortization of intangible assets), which represents 20%-21% growth over 2008, sees $3.28-$3.38 2010 (excluding amortization of intangible assets), which is growth of 16%-21% over revised 2009 guidance.
Energizer Holdings (ENR) posted $0.53, vs. $1.67, fourth quarter EPS on 3.9% sales drop. It sees low single-digit fiscal year 2010 EPS growth.
UBS AG (UBS) posted CHF 0.15 third quarter loss per share, vs. CHF 0.09 EPS a year ago. The bank noted third quarter accounting charges of CHF 2.15 billion. It does not expect an immediate recovery in client net new money flows, and the impact of low interest rates on net interest income continues to hold back revenues, especially in Wealth Management and Swiss Bank. It expects another credit charge in the fourth quarter, as a result of further tightening of its credit spreads.
Archer-Daniels-Midland (ADM) reported posts $0.77, vs. $1.62 a year ago, first quarter EPS on a 29% sales decline. The Street was looking for $0.56-$0.57.
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