Stocks jumped on Monday on news that President Bush selected Ben Bernanke, chairman of the president's Council of Economic Advisers, to replace Alan Greenspan as Federal Reserve chairman.
The Dow Jones industrial average climbed 169.78 points, or 1.66%, to 10,385.00. The broader Standard & Poor's 500 index gained 19.79 points, or 1.68%, to 1,199.38. The tech-heavy Nasdaq composite index shot up 33.62 points, or 1.61%, to 2,115.83.
The market cheered news that Bernanke will take the helm at the Fed. "The chorus around it suggests that he is indeed the right choice," says Joe Battipaglia, chief investment officer for Ryan, Beck & Co., citing Bernanke's academic background, government service, and ability to communicate. Still, Bernanke will have to build credibility and will face challenges, he says.
The key for the markets is when will the interest rate hikes end. Battipaglia figures the Fed will raise rates at least two more times, bringing the fed funds rate to between 4.25% and 4.50%. Battipagilia notes that the inflation data (the core consumer price index and personal consumption expenditures) coming out between now and when Greenspan steps down in January will be very important for the markets. "If inflation moderates, then we don't have an energy-based inflation problem," he explains. "The rate cycle could end with Greenspan."
Besides fighting inflation, Bernanke will also face challenges such as the current account deficit and trade deficit, Battipaglia says. Overall, though, when it comes to filling Greenspan's shoes, Battipaglia is optimistic. "Ben is a creative economist," he says. "I think he will build credibility rapidly, just as Greenspan did."
Among stocks in the news, Cendant (CD ) announced it will separate into four independent, publicly-traded companies: 1 each for its real estate, travel distribution, hospitality, and vehicle rental businesses. Cendant shareholders will own 100% of equity in all four companies.
Albertson's (ABS ) shares rose on a Wall Street Journal report that Kroger submitted a preliminary bid for Albertson's supermarkets, according to two people, adding a new competitor to private-equity firms that been main suitors of the company. BB&T Capital upgraded the stock to buy.
Sovereign Bancorp (SOV ) is expected to pay $42 per share, or a total of $3.5 billion, to acquire Independence Community Bank (ICBC ), according to The Wall Street Journal. The newspaper says the deal would follow on the heels of Spain's Santander taking a 20% stake in Sovereign.
Pharmaceutical shares rose following firm quarterly results from Merck (MRK ) and Schering-Plough (SGP ). Merck reported better-than-expected earnings per share of 65 cents per share.
Schering-Plough reported third-quarter EPS of 3 cents, vs. 1 cent a year ago (GAAP), on a 15% rise in revenue.
Other companies on this week's busy earnings calendar include Texas Instruments (TXN ), BellSouth (BLS ), Microsoft (MSFT ), Boeing (BA ), Sprint Nextel (S ), ExxonMobil (XOM ), Verizon (VZ ), and more.
In the energy markets, December West Texas Intermediate crude oil fell 31 cents to $60.32 a barrel, after Hurricane Wilma hit land in southern Florida and missed Gulf of Mexico refineries.
Tuesday's release of September existing home sales is expected to moderate to 7.21 million units. "Continued strength in the economy, a healthy job market, and still-low mortgage rates all bode well for the outlook," says Action Economis.
The October reading for consumer confidence is expected to rise to 88.5 from 86.6 last month. After Hurricane Katrina took a heavy toll on September confidence, other more timely measures of confidence suggest sentiment this month is already beginning to lift, says Action Economics.
Treasury prices fell, pushing the 10-year note yield up to 4.44%, as Bernanke's inflation-fighting credentials were debated, says Action Economics. Fed Chairman Greenspan lauded the Bernanke appointment as his successor, calling it a distinguished appointment and referring to Bernanke's superb academic credentials and important insights into the economy, reports Action Economics.
European stock markets finished higher on Monday. London's Financial Times-Stock Exchange 100 index was up 65.5 points, or 1.27%, at 5,207.6.
Germany's DAX index gained 63.39 points, or 1.31%, to 4,901.79. In Paris, the CAC 40 index rose 55.45 points, or 1.27%, to 4,421.97.
Asian markets finished lower on Monday. In Japan, the Nikkei 225 index fell 93.77 points, or 0.71%, to 13,106.18. Stocks fell in Tokyo due to nervousness ahead of some big earnings reports this week. Pioneer forecast its biggest loss on record due to sliding prices of DVD recorders and plasma TVs, hurting tech shares as well as broader market sentiment, says Standard & Poor's MarketScope.
In Hong Kong, the Hang Seng index declined 85.50 points, or 0.59%, to 14,402.35. The Hong Kong market was also weak, weighed down in part by investors cashing in Friday gains ahead of China Construction Bank's debt listing on Thursday, says Standard & Poor's MarketScope.
By Karyn McCormack