For once, Wall Street did not dance to the tune of zigzagging oil prices this week.
Instead, tame inflation data, some good earnings results and a slew of big acquisitions helped energise investors and flame hopes of a year-end rally.
After a quiet start, Wall Street roared back to life on Thursday, with the Nasdaq Composite index hitting a four-year high, while the Dow Jones Industrial Average and the S&P 500 both broke through resistance levels at 10,700 and 1,240 respectively.
The run continued on Friday, with the main indices closing higher after making a late surge.
The Dow closed up 46.11 points, or 0.4 per cent, at 10,766.33 while the broader S&P 500 gained 5.47 points, or 0.4 per cent to 1,248.27 - a 4½ year high. The Nasdaq continued its run, advancing 6.61 points, or 0.3 per cent to 2,227.07.
For the week, the Dow advanced 0.8 per cent as the S&P 500 and the Nasdaq put on 1.1 per cent a piece.
Som Dasgupta, head of equity at PNC Financial Services Group, said Thursday’s upswing and Friday’s consolidation of the gains were significant developments and suggested an undervaluation of the market.
“There is more of a chance of the market moving up now than down,” he said. “All signs are pointing to a stable market. Crude prices are lower, core consumer prices are down and merger and acquisition activity picked up sharply. Now we just need to see what type of support the indices can get at the new levels.”
The view was echoed by Christopher Johnson, director of quantitative analysis at Schaeffer’s, who took an equally cautious stance.
“The type of activity that we have seen this week is certainly conducive to a year-end rally but we still need to wait for a confirmation,” he said. “We can’t dismiss the inverted yield curve. Historically, when long-term bond yield falls behind short-term ones, it is a sign of a potential slowdown in the growth of the economy.”
Among the S&P 500 index groups, all but one were in the black, with energy shares, up 3 per cent, leading the charge, followed by materials, up 2.5 per cent and industrials, up 2.4 per cent.
Paper products featured in the week’s main merger and acquisition news, with Koch Industries’ $13.2bn bid for paper product maker Georgia-Pacific lifting the industry sub-index up 14.3 per cent. Georgia-Pacific’s shares surged 36.2 per cent on the week, while other paper and forest product stocks rose on speculation that Koch might be hunting for more acquisitions in the sector.
The Dow also got a lift from Johnson and Johnson’s revised $21.5bn takeover offer for Guidant, the heart device maker.
Guidant rose 5.9 per cent over the five sessions, while J&J ticked up 2.7 per cent as investors rewarded the company for ending the uncertainty that had surrounded the acquisition.
The deal-making continued on Friday, with Cisco Systems’ agreement to acquire cable-television technology company Scientific-Atlanta for approximately $6.9bn, or $43 a share. Cisco lost 2.7 per cent on the week, while Scientific-Atlanta put on 8.4 per cent.
General Electric also caused a stir on Friday after the conglomerate agreed to sell most of its insurance division to Swiss Re in an $8.5bn deal. Its shares extended its weekly gains by 3.2 per cent, buoyed by the company’s decision to raise its quarterly dividend 14 per cent and expanded its share buyback plan.
General Motors and the auto sector remained in focus. After slumping by as much as 22 per cent over seven sessions, the stock’s decline came to a halt on Thursday. However, shares are still off 1.8 per cent from last week
Its fortunes contrasted sharply with that of Google, which jumped above the $400 mark this week.
The stock has risen more than 300 per cent since it went public in August 2004. It rose 2.5 per cent this week.
Meanwhile, retailers failed to provide the spark many were expecting. Although Wal-Mart and Lowes kicked off the week with strong quarterly figures, the retail sector was off 0.1 per cent on the week, dragged down by losses in Target, down 6 per cent for the week.
On the earnings front, computer maker Hewlett-Packard, rose 3.1 per cent on the week, after seeing better-than-expected earnings. Fiscal fourth-quarter sales was up 7 per cent, but net earnings fell 62 per cent because of a one-off $1.1bn restructuring charge.
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