Market swings up on merger news
NEW YORK » Wall Street rallied on a burst of optimism yesterday as the multibillion-dollar buyout of HCA Inc. and upbeat earnings from a pair of drugmakers tempered anxiety about an economic slowdown. The Dow Jones industrial average soared more than 180 points.
Acquisitions led the day's headlines, with three equity firms agreeing to take hospital operator HCA private for $21.3 billion of cash and the assumption of $11.7 billion in debt, marking the largest-ever leveraged buyout. Advanced Micro Devices Inc. also acquired ATI Technologies Inc. for $5.4 billion.
The acquisition news relieved investors concerned about a weakening economy. Corporate buyouts typically signal optimism over economic growth; a profit warning from Dell Inc. late last week dimmed the near-term outlook and dragged the Nasdaq composite index to a 14-month low.
"The fact that merger and acquisition activity is strong in the United States and abroad is a good indication that while the economy is expected to slow, perhaps the worry of a hard landing is overstated," said Peter Cardillo, chief strategist at S.W. Bach & Co. He added that lower gold prices and gains for the dollar also boosted stocks.
Solid earnings from drugmakers contributed momentum. Dow Jones industrial Merck & Co. said its second-quarter earnings more than doubled to top Wall Street estimates, while Schering-Plough Corp. swung to a profit and also beat expectations.
At the close of trading, the Dow surged 182.67, or 1.68 percent, to 11,051.05.
Broader stock indicators were also higher. The Standard & Poor's 500 index added 20.62, or 1.66 percent, to 1,260.91, and the Nasdaq jumped 41.45, or 2.05 percent, to 2,061.84.
Big index moves and wide advance-decline margins have become more frequent as of late, as jitters about interest rates, inflation and a slowing economy caused fluctuations in investor sentiment. The volatility shows "there's not a great deal of certainty or conviction on one side of the trade," said Art Hogan, chief market analyst for Jefferies & Co.
A disappointing early round of earnings fed uneasiness about the economy's strength and punished stocks two weeks ago, while increased hopes for an end to the Federal Reserve's rate tightening gave the Dow solid gains last week. Aside from more earnings, critical data this week on consumer confidence and second-quarter gross domestic product growth could drive stocks in either direction, Hogan said.