Markets & Finance

Stocks Get a Lift from M&A News


Markets staged a partial recovery Wednesday from a plunge in the previous session. But investors continue to fret about the housing sector

Stocks on Wednesday bounced back a bit from a sell-off on Tuesday as earnings season starts to heat up.

Mergers-and-acquisitions activity, including rumors that Colgate-Palmolive (CL; +1.69%) may make a bid for Unilever (UN; +3.32%), helped markets rattled by worries about subprime mortgages on Tuesday. Traders received another reminder Wednesday of problems in the housing sector after Ryland Group, a major homebuilder, announced a big quarterly loss amid deteriorating conditions in key markets.

Dan Genter, president of RNC Genter Capital Management, says all eyes are on second quarter reports that began arriving this week. "Right now it's just all earnings," he says. The market has "fully digested" the fact the Federal Reserve probably will not touch interest rates for the near future.

The only other factor influencing markets remains worries about subprime mortgages. Other than that, "there's not much to push this market," Genter says. And with so much riding on earnings numbers, expect a lot of volatility from day to day, he says.

On Wednesday, the Dow Jones industrial average was up 76.49 points, or 0.57%, to 13,578.19. The broader S&P 500 index rose 8.64 points, or 0.57%, to 1,518.76.

The tech-heavy Nasdaq composite index moved up 12.63 points, or 0.48%, at 2,651.79.

On the New York Stock Exchange, for every 18 stocks moving higher, 15 dropped in price. The ratio was 16 to 14 positive on the Nasdaq exchange. Trading was active.

On Tuesday, the Dow, S&P 500 and Nasdaq all lost more than 1% of their value on worries about subprime mortgages, disappointing news from retailers and high oil prices.

Crude oil futures started Wednesday lower and only rallied a bit after inventory data showed a 1.4 million fall in crude stocks. August WTI crude futures were down 25 cents to $72.56.

The Mortgage Bankers Assn. weekly mortgage applications survey on Wednesday showed loan applications rose 1.1% from the week before on an adjusted basis. For 30-year fixed-rate mortgages, the average contract interest rate increased to 6.65% from 6.5%.

Investors will also be eyeing initial jobless claims figures on Thursday. Retail sales, Michigan consumer sentiment and business inventories are on the economic calendar for this Friday.

Among stocks in the news on Wednesday, home builder Ryland Group (RYL; -0.28%) expects a loss in the second quarter of $1.25 to $1.35 per share due to deterioration in the housing market. The company expects to take additional charges of $145 million to $155 million.

Both Genentech (DNA; +1.39%) and Yum! Brands (YUM; +4.91%) reported earnings after the close of trading Wednesday. Yum! was trading higher after UBS analyst David Palmer upgraded the company and raised his earnings estimates.

Liz Clairborne (LIZ; +0.89%) is cutting 600 to 800 jobs and will consider selling 16 of its brands. The firm says it expects earnings of 22 to 24 cents per share in the second quarter, and expects annual cost savings of $190 million by 2010.

Gerdau Ameristeel Corp. (GNA; -7.52%) agreed to buy Chaparral Steel (CHAP; +10.54%) for $86 per share in cash, a 14% premium over Tuesday's closing price.

SLM Corp. (SLM; -9.78%), known as Sallie Mae, traded lower after private equity firm J.C. Flowers & Co. said its proposed $25 billion buyout of SLM could be threatened by Congressional proposals to cut subsidies to student lenders like Sallie Mae.

Wolverine World Wide (WWW; +0.87%) reported earnings of 28 cents per share, vs. 25 cents a year ago on a 5% rise in revenue. The shoemaker raised its earnings for cast for the year from $1.57-$1.63 per share to $1.60-$1.64.

New Brunswick Scientific Co. (NBSC; +38.98%) agreed to be acquired by the Eppendorf Group for $11.50 per share, a 43% premium over Tuesday's closing price.

European indexes fell on Wednesday. In London, the FTSE 100 index was off 0.24% to 6,615.10. In Paris, the CAC 40 index moved down 0.3% to 6,001.09. Germany's DAX index fell 0.83% to 7,898.54.

Asian markets were also lower. Japan's Nikkei 225 index fell 1.11% to 18,049.51. In Hong Kong, the Hang Seng index dropped 1.22% to 22,607.02. In mainland China, Shanghai's benchmark index fell 0.33% to 3,865.72.

Treasury Market

Bonds were lower on Wednesday. The 10-year Treasury note fell 16/32 to 95-15/32 for a yield of 5.09%; 2-year notes were down 03/32 at 99-31/32 for a yield of 4.89%; and 30-year bonds were off 34/32 at 93-10/32 for a yield of 5.19%.

Tuesday's subprime worries drove many investors toward the relative safety of Treasuries. But Wednesday's bounce in U.S. stocks and a "slight retreat in risk aversion" helped drive profit taking on bonds, Action Economics says.

Steverman is a reporter for BusinessWeek's Investing channel.

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