Investors looked past the ongoing woes of subprime lender New Century to cheer a torrent of takeover headlines
Stocks finished higher Monday, recovering from early lows, as a rush of M&A activity helped offset worries about the subprime mortgage market. Trading was slow as investors awaited a busy slate of economic data due this week, starting with Tuesday's retail sales report.
On Monday, the Dow Jones industrial average rose 42.3 points, or 0.34%, to 12,318.62, boosted by Boeing (BA) and Intel (INTC). The broader Standard & Poor's 500 index added 3.75 points, or 0.27%, to 1,406.6. The tech-heavy Nasdaq composite climbed 14.74 points, or 0.62%, to 2,402.29.
NYSE breadth was positive, with 22 issues advancing for every 12 declining. Nasdaq breadth was 18-13 positive.
Slowing growth may soon trump inflation as the Federal Reserve's biggest concern, some analysts say. "Even though we expect global inflation pressures to keep the Federal Reserve's attention for some time, the deceleration in the domestic economy is now more apparent, and the weakness may require the Fed to ease policy sometime in 2007 to avert a significant slowdown," says Thomas McManus, chief investment strategist at Banc of America Securities, in a note to clients. "The stock market may attempt another rally on the prospects for Fed easing this year, but we believe the correct focus should be on the extent of the earnings decline, and the timing and pace of a potential earnings recovery in 2008."
The calendar Tuesday brings some key economic releases. February retail sales are expected to rise 0.5%, while the ex-auto aggregate adds 0.6%, says Action Economics. January business inventories are seeing rising 0.1% (median 0.1%), alongside a 0.7% sales decline.
Also Tuesday, Goldman Sachs (GS) is set to announce first-quarter earnings.
Among Monday's stocks in the news, New Century Financial (NEW) was in focus as the beleaguered subprime mortgage company said lenders had cut off its funding. Shares tumbled nearly 50% in pre-market trading before trading was halted pending an announcement.
M&A news was also in the spotlight. Dollar General (DG) was sharply higher after private-equity firm Kohlberg Kravis Roberts said it is acquiring the retailer for about $6.87 billion, or $22 a share.
Sierra Health Services (SIE) was solidly higher after health insurer UnitedHealth (UNH) agreed to buy the health care services provider for about $2.6 billion, or $43.50 a share.
Shares of Schering-Plough (SGP) gained after the drugmaker said agreed to buy the pharmaceutical division of Netherlands-based Akzo Nobel for about $14.5 billion.
Tribune (TRB) was lower despite a report Chicago real-estate investor Sam Zell bid $13 billion for the newspaper publisher.
Meanwhile, Citigroup (C) edged higher after Japanese brokerage Nikko Cordial's four largest shareholders rejected the banking giant's takeover bid.
Ford (F) was up slightly after the automaker said it would sell its Aston-Martin luxury unit to a group led by U.K. auto-racing champion David Richards in a deal valued at $925 million
The economic calendar was quiet Monday. Tuesday's retail sales data could give an indication of the strength of the economy and whether the Fed might adjust interest rates at next week's policy meeting, says S&P.
In the energy markets, April West Texas Intermediate crude oil futures fell $1.14 to $58.91 a barrel amid warmer weather and reports OPEC won't cut output at its meeting Thursday in Vienna.
European markets finished lower. The FTSE-100 index in London fell 25.6 points, or 0.41%, to 6,219.6. Germany's DAX index shed 8.29 points, or 0.12%, to 6,708.23. In Paris, the CAC 40 index was down 45.34 points, or 0.8%, to 5,493.5.
Asian markets ended higher. In Japan, the Nikkei 225 index gained 128.35 points, or 0.75%, to 17,292.39. In Hong Kong, the Hang Seng index climbed 307.54 points, or 1.61%, to 19,442.42. Korea's Kospi index advanced 17.75 points, or 1.25%, to 1,441.33.
Treasury prices pushed higher as investors shifted out of riskier asset classes and into the relative safety of government debt, amid fears about the subprime lending industry. The 10-year note rose in price to 100-19/32 for a yield of 4.55%, while 30-year bonds climbed to to 100-31/32 for a yield of 4.69%.