A massive deal in the oil-drilling sector gave the markets energy Monday, along with strong results from Dow component Merck.
The Dow Jones Industrial Average rose 92.34 to 13943.42. It has risen seven of the last nine sessions, and is 12% higher year to date.
The S&P 500 added 7.47 to 1541.57, and is up 8.7% on the year. The Nasdaq Composite Index gained 2.98 to 2690.58, putting it 11% higher since the end of last year.
"There was bounceback from Friday," when the major indexes each fell more than 1%, said Tony Dwyer, equity-market strategist at FTN Midwest Research. "There's caution in the tape, given the recent run higher and the nagging issues surrounding subprime lending."
Shares took a couple dips during the day off the session's highs, but were pretty solidly in the black most of the session. Still, technology companies showed some weakness, with the tech-heavy Nasdaq bouncing around for much of the session, and ultimately just holding above water at day's end. Breadth turned lower, ending the day with decliners outnumbering advancers on the NYSE.
"It's crazy action. We seem to be every-other-day" going up, then down, then up again, said Bill Nichols, a trader at Bear Stearns. "We're still a little in no-man's-land," with earnings reports surprising both high and low, and intermittent concerns about the subprime-mortgage sector jostling markets.
Energy companies got a big boost, as Transocean and GlobalSantaFe agreed to a mergerSchlumberger. Shares of GlobalSantaFe rose 4.8%, while Transocean added 5.5%. that may lead to other deals in the oil-drilling sector. The transaction would create a company with a combined market capitalization of $48 billion, based on Friday's closing prices, second among drillers only to
The pharmaceutical sector, which suffered last week, received some good news as Dow component Merck watched its shares rise 6.8% after reporting second-quarter earnings above analysts' expectations. Merck also raised its full-year earnings forecast.
Stocks have spent time in uncharted territory recently, with the Dow hitting 14000 just last week. One of the main catalysts has been better-than-expected corporate profits, which also fueled a strong bull run in April and May. Continued merger activity, corporate stock buybacks and strong global growth have been other factors in the historic stock-market climb of recent months.
However, there are a number of concerns that could bring stocks down. Weakness in the subprime-mortgage sector is one of the biggest, because investors have little idea how long it will last or how extensive the fallout will be. When adverse subprime news comes out, it puts heavy pressure on the markets -- as in the deep swoon seen Friday.
In fact, even on a day with little subprime news, the mortgage sector suffered. American Home Mortgage Investment fell 8.9%. And Countrywide Financial, which reports earnings Tuesday, dipped 0.9%.
"People are concerned with subprime lending and fears of inflation, but they aren't so scared," said Robert Pavlik, chief investment officer at Oaktree Asset Management. "They're using dips in the market like we saw Friday to get into high-quality names."
Deal announcements extended beyond the energy sector. Cerberus Capital Management reached a $4 billion deal to buy United Rentals, the world's largest equipment-rental company by fleet size, and United Rentals' shares advanced 1.9%. Barclays rose 2.9% after it increased its offer for ABN Amro Holding to $93 billion, added cash to the bid, and agreed to sell up to 19% of itself to the governments of China and Singapore. Shares of OpswareHewlett-Packard for $1.6 billion, or $14.25 a share. Tellabs rose 3% after TheStreet.comNokia Siemens Networks. shot up 36% after the automation-software company agreed to be acquired by reported that the company is entertaining a $7 billion takeover offer from
Earnings reports moved stocks as well. Hasbro's quarterly profit fell 82%, as a charge of $36.5 million outweighed the effect of a licensing deal for "Spider-Man 3" toys and sales of "Transformers" toys, and shares fell 4.9%. Halliburton shares rose 5.4% after the energy services company said its quarterly net more than doubled due to gains from its April spinoff of KBR. KBR shares gained 2%.
Among post-session profit reports, American Express reported a 12% jump in second-quarter profit, beating Wall Street forecasts, though revenue growth missed expectations, and shares fell 1.4% to $63.75 in late trading. Semiconductor maker Texas Instruments saw shares fall 4.1% to $36.60 in late trading after reporting quarterly earnings that were in line with expectations.
The dollar touched a record low against the euro and also hit fresh multiyear lows against the British pound and New Zealand dollar. Yields on 10-year Treasury notes stayed below 5% after recent safe-haven buying on fears about the impact from subprime-mortgage defaults.
Crude-oil futures gave up some recent gains, falling 90 cents to $74.89 a barrel with September as the new front-month contract, amid suggestions that the Organization for Petroleum Exporting Countries may increase its output. It is still up 23% year to date.
Natural-gas futures plummeted 6.3% to $6.039 a million British thermal units, its lowest settle price of the year, amid forecasts predicting lower-than-expected temperatures in major gas-consuming regions over the next two weeks.
by JOANNA OSSINGER