Wall Street eyed the Treasury's financial-industry oversight plan, a stronger than expected Chicago PMI, and big drops for Merck and Schering-Plough
By BW Staff
At least it ended well.
On Monday, equity investors bid goodbye to an atrocious first quarter that included massive subprime writedowns, head-spinning volatility, the humbling of once-mighty Wall Street firms and, oh yes, a full-blown financial crisis.
Major U.S. stock indexes closed higher Monday in light trading on the final day of the first quarter. The market's advance snapped a recent losing streak and followed the release of a stronger-than-expected Chicago Purchasing Managers index and a government plan to overhaul the way Wall Street is regulated. Financial issues were among the best performers on the session, as were stocks tied to biotechnology and housewares.
On Monday, the Dow Jones Industrial Average finished higher by 46.49 points, or 0.38%, at 12,262.89. The S&P 500 index rose 7.48 points, or 0.57%, to end the session at 1,322.70. The Nasdaq composite index added 17.92 points, or 0.79%, to close at 2,279.10.
On the New York Stock Exchange, 19 stocks moved higher in price for every 12 that declined, while on the Nasdaq the ratio was 19-12 positive.
The positive performance Monday capped an otherwise dismal quarter for the major U.S. indexes. In the first quarter of 2008, the Dow fell 7.55% and the S&P 500 index lost 9.92%. The Nasdaq was by far the worst performer among major U.S. equity benchmarks in the first three months of the year, dropping 14.07%.
Investors on Monday weighed negative news involving two major U.S. pharmaceutical outfits. Schering-Plough (SGP) shares plunged 26% after the company and partner Merck & Co Inc. (MRK) announced that ENHANCE trial results show no statistically significant difference between the two treatment groups on the change in the average carotid artery intima-media thickness at three carotid artery locations. An expert panel says patients should use statin and other proven drugs rather than Vytorin, the cholesterol drug jointly developed by the two drug makers. Cowen cut its rating on Schering-Plough to neutral from outperform. Merck shares were down 17%.
U.S. markets got details of Treasury Secretary Henry Paulson's speech outlining the overhaul of U.S. bank regulatory operations that would give the Federal Reserve more power, but the plan won't pass this year, S&P MarketScope said. The blueprint reportedly would reduce the oversight role of the Securities and Exchange Commission, which might merge with the more permissive Commodities Futures Trading Commission. But some critics are concerned that the plan won't address the problems around new derivative products, which Paulson expects "market discipline" to control.
The eagerly awaited U.S. Department of Agriculture's planting report shows that U.S. farmers plan to cut corn acreage by 8% to 86 million acres and to boost plantings of soybeans and wheat in response to strong demand and higher prices. Soybean acreage will grow by 18% to more than 74 million acres while farmers will plant 63.8 million acres of wheat, a 6% increase from last year. The report suggests an attempt to alleviate some of the agricultural commodity price pressure and also has implications for supply of ethanol.
Defying recent signs of stabilization in the financial sector, Standard & Poor's downgraded FGIC's credit rating to junk after the close of trading Friday and said the insurance provided by the bond insurer was now effectively worthless. S&P cut FGIC's insurance rating by six notches from A to BB, two steps below investment grade, noting its inability to raise capital or write new business. The move comes close on the heels of Fitch Ratings' downgrade of FGIC's rating to BBB from AA last week.
PMI Group, FGIC's principal owner, has said it isn't considering contributing additional capital to the troubled bond insurer.
U.S. Chicago PMI rebounded 3.7 points to 48.2 in March after falling to 44.5 in February. It was also better than the 46.0 reading that markets had expected. Employment rose to 44.6 after falling to a six-year low of 33.5 the month before. The new orders rose to 53.9 from 48.8, while prices paid climbed to 83.9 from 79.4. While coming in better than expected, the index has been below the 50 point neutral reading for three straight months.
The Chicago survey is the first of a raft of new data that will be pored over for clues about whether the U.S. has entered a recession. The ISM's index of manufacturing activity, due out on Tuesday, and the ISM’s nonmanufacturing gauge, on tap for Thursday, will be watched particularly closely, but Friday's nonfarm payrolls and unemployment rate for March are seen as the most important.
On Wednesday, Fed Chairman Ben Bernanke will testify before the Senate's Joint Economic Committee on the economic outlook. In his first public appearance since the collapse of Bear Stearns (BSC) and the Fed’s Mar. 18 rate cut, Bernanke will get to explain more fully the Fed’s latest innovative policy moves and its thinking in handling the mess at Bear.
May WTI crude oil futures plunged $4.07 to $101.55 per barrel amid renewed speculation the slowing U.S. economy will spread, reducing demand for commodities, particularly oil. Violence has been reduced in much of Iraq. While the flow of Iraqi oil exports from Basra is returning to normal, analysts said the market remained uneasy about security in the Middle East as well as threats of further supply disruptions. Meanwhile, oil industry unions in Gabon have threatened a nationwide strike if they fail to reach a deal to end a stoppage at Shell's subsidiary in the country, where 60,000 barrels per day is shut.
Comex June gold futures fell $15.00 to $921.50 per ounce Monday afternoon as the dollar and U.S. stocks rose on the final day of the first quarter.
Among the other stocks in the news on Monday, Ansoft Corp. (ANST) agreed to be acquired by Ansys Inc. (ANSS) for about $832 million in cash and stock. Ansoft shareholders would receive $16.25 in cash and 0.43 shares of Ansys for each Ansoft share held. Anspft shares rose 30.5%.
Altria Group (MO) completed its spin-off of Philip Morris International. Altria shareholders received one share of Philip Morris (PM) stock for every share of Altria they held. Philip Morris shares begin trading on the New York Stock Exchange today.
Gilat Satellite Networks Ltd. (GILT)agreed to be acquired by a consortium of private equity investors in a deal worth $475 million, under which shareholders would receive $11.40 in cash for every share of Gilat they own.
European stock markets were mixed on Monday. In London, the FTSE 100 index was up 0.16% at 5,702.10. In Paris, the CAC 40 index was higher by 0.24% at 4,707.07. Germany’s DAX index fell 24.93 points, or 0.38%, to 6,534.97.
Asian markets weakened overnight. Japan’s Nikkei 225 index dropped 2.30% to 12,525.54. The Hang Seng index in Hong Kong shed 1.88% of its value to trade at 22,849.20.
Treasuries rose slightly on Monday. The 10-year note added 04/32 to 100-21/32 for a yield of 3.42%, while the 30-year bond gained 03/32 to 101-10/32 for yield of 4.30%.