U.S. Stocks Rally Amid M&A Deals as Japan Nuclear Crisis Eases
U.S. stocks rallied, sending the Standard & Poor’s 500 Index higher for a third day, as concern eased that Japan will suffer a nuclear meltdown and after AT&T Inc. (T) agreed to buy T-Mobile USA for $39 billion.
AT&T added 1.2 percent after agreeing to buy Deutsche Telekom AG’s U.S. wireless unit. OptionsXpress Holdings Inc. (OXPS) soared 17 percent after Charles Schwab Corp. (SCHW) agreed to buy the company for $1 billion in stock. American International Group Inc. (AIG) and Hartford Financial Services Group Inc. (HIG) rallied at least 3.9 percent as Japan made progress in restoring power to two reactors. Energy shares advanced as crude oil gained.
The S&P 500 rose 1.5 percent to 1,298.38 at 4 p.m. and has rallied 3.3 percent in three days, the longest winning streak in about a month. The Dow Jones Industrial Average added 178.01 points, or 1.5 percent, to 12,036.53. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, slumped 16 percent, the biggest decline since May, to 20.61.
“We ought to be overweight equities,” said Hayes Miller, the Boston-based head of asset allocation in North America at Baring Asset Management Inc., which oversees $51.6 billion. “I don’t think that anything that’s happening in Japan or Libya changes the attractiveness of stocks. On top of that, companies have cash and they need to deploy it somehow if they can find accretive deals. The AT&T buyout looks very interesting. Investors are also looking at dividends and buybacks.”
U.S. stocks fell last week, sending the S&P 500 down 1.9 percent, amid concern that Japan’s nuclear crisis and violence in Libya and Bahrain may curb the economic recovery. The gauge rose on March 18 as the Federal Reserve cleared the way for lenders to boost dividends, Libya announced a cease-fire and central banks worked to support Japan’s economy.
Global stocks rose today after Japanese Prime Minister Naoto Kan said progress is being made in restoring power to two reactors at the Fukushima Dai-Ichi plant, which was damaged by the March 11 temblor and ensuing tsunami. In Libya, allied officials said air and missile strikes have effectively grounded Muammar Qaddafi’s air force.
Billionaire investor Warren Buffett said Japan’s record earthquake is a buying opportunity and he won’t sell his shares in the country. Buffett canceled a trip this week to Japan to visit a factory owned by Iscar Metalworking Cos.’s Tungaloy Corp. in Fukushima prefecture, the site of the worst nuclear disaster in 25 years. Buffett’s Berkshire Hathaway Inc. owns 80 percent of Iscar, a maker of cutting tools.
“If I owned Japanese stocks, I would certainly not be selling them because of the events of the past 10 days or so,” said Buffett, speaking to reporters in the South Korean city of Daegu, where he arrived yesterday to attend a ceremony for a new factory being built by TaeguTec Ltd. “Something out of the blue like this, an extraordinary event, really creates a buying opportunity.”
AT&T gained 1.2 percent to $28.26. The phone company agreed to buy T-Mobile USA from Deutsche Telekom for about $39 billion in cash and stock to create America’s largest mobile- phone company, trumping Sprint Nextel Corp. (S)’s effort to acquire the business. The deal would allow AT&T, now the second-largest U.S. wireless operator, to add about 34 million customers and surpass Verizon Wireless. AT&T was raised to “buy” from “hold” at Citigroup.
Sprint tumbled 14 percent to $4.36.
OptionsXpress soared 17 percent to $17.90. Charles Schwab agreed to buy the Chicago-based company for $1 billion in stock, adding the 10-year-old retail options broker to its equity and mutual fund offerings. The largest independent brokerage by client asset will exchange 1.02 shares for each share of OptionsXpress. Charles Schwab added 0.5 percent to $17.65.
AIG rose 6 percent to $37.03 even after the insurer bailed out by U.S. taxpayers said first-quarter catastrophes including the earthquake in Japan will cost the company about $1 billion this quarter.
Hartford added 3.9 percent to $26.49.
An index of energy shares rallied 2.9 percent, the most in the S&P 500 within 10 industries. Oil rose as allied air strikes in Libya threatened to prolong a supply disruption in Africa’s third-biggest producer and on concern that escalating turmoil may curtail Middle East shipments.
CBS Corp. (CBS) gained 5.5 percent to $24.51. Ratings from the NCAA basketball tournament have been up 11 percent from the same period last year, David Joyce, analyst at Miller Tabak & Co., said in a note today. There has been strong demand for advertising and the tournament should be “the second-largest sports ad revenue event after the Super Bowl,” he wrote.
Tiffany & Co. (TIF) climbed 5.1 percent to $60.22. The world’s second-largest luxury jewelry retailer reported a 29 percent gain in fourth-quarter profit as sales exceeded analyst estimates during the holiday season.
Citigroup Inc. (C) lost 1.5 percent to $4.43 after reporting a 1-for-10 reverse split of its common stock. Citigroup also reported that it intends to reinstate a quarterly dividend of 1 cent per common share in the second quarter of 2011, following the effective date of the reverse stock split.
U.S. stocks maintained gains even after the National Association of Realtors said that sales of U.S. previously owned homes dropped more than forecast in February and the median purchase price declined to the lowest since April 2002. Purchases decreased 9.6 percent to a 4.88 million annual rate, less than the 5.13 million median forecast of economists surveyed by Bloomberg News.
“Those things are all part of uncertainties we deal with on a day-by-day basis,” said Joseph Keating, chief investment officer at CenterState Wealth Management, who manages $1 billion in Birmingham, Alabama. “When you do the calculus, it comes down to saying, ‘the U.S. economy looks like it’s on solid footing and earnings will continue to grow. This is a buying opportunity.”
To contact the editor responsible for this story: Nick Baker at firstname.lastname@example.org