Stocks finished narrowly mixed Monday despite upbeat data on non-manufacturing economic activity and a raft of takeover news. Some traders were nervous about President Bush's $2.9 trillion budget proposal, says Standard & Poor's Equity Research.
On Monday, the Dow Jones industrial average nuged higher 8.25 points, or 0.07%, to 12,661.74. The broader Standard & Poor's 500 index slipped 1.4 points, or 0.1%, to 1,446.99. The tech-heavy Nasdaq composite was down 5.28 points, or 0.21%, to 2,470.6, hampered by weakness in Microsoft (MSFT).
NYSE breadth was negative, with 18 issues declining for every 15 advancing. Nasdaq breadth was 17-13 negative.
Big companies' share prices have withstood slower fourth-quarter earnings growth better than those of their smaller peers, some analysts say. "The S&P 500 index is displaying more earnings growth resilience than smaller cap indexes in the face of continued deceleration that we suspect will spread gradually over the course of this year," says Thomas McManus, chief investment strategist at Banc of America Securities, in a note to clients. "That resilience should be rewarded with renewed outperformance for larger capitalization stocks, in our view."
A potential increase in domestic mutual-fund flows relative to international funds could give the market a boost, others observe. "We do not see significant warnings signals for an economic downturn and see little reason to be bearish on the U.S. equity market at this juncture," says Tobias Levkovich, chief U.S. equity strategist at Citigroup, in a client dispatch.
In economic news Monday, the Institute for Supply Management's non-manufacturing "business activity" index rose to 59.0 in January, from a downwardly revised 56.7 in December, amid a pickup in service-sector activity. The report was much stronger than expected, says Action Economics.
Meanwhile, Bush sent Congress a $2.9 trillion budget that would include billions of dollars for the war in Iraq and make his first-term tax cuts permanent.
Looking ahead, Treasury Secretary Henry Paulson was set to give his defense of Bush's budget proposal Tuesday. Separately, Federal Reserve Chairman Ben Bernanke and other central bankers are also slated to speak.
Among stocks in the news Monday, Wal-Mart (WMT) was higher after the retailer said its sales rose 2.2% in January, ahead of the company's projections.
M&A activity was also in focus. Triad Hospitals (TRI) agreed to be bought by affiliates of private-equity firm CCMP Capital Advisors and Goldman Sachs' (GS) GS Capital Partners for $6.4 billion including debt assumption, or $50.25 a share in cash.
State Street (STT) agreed to buy Investors Financial Services (IFN) for about $4.5 billion in stock.
America Real Estate Partners, an affiliate of billionaire investor activist Carl Icahn, made an offer to acquire all shares of automotive supplier Lear (LEA) for $2.6 billion, or $36 per share in cash.
On the earnings front, Humana (HUM) was higher after the health insurer reported sharply higher fourth-quarter earnings, beating analyst expectations.
Fellow medical insurer UnitedHealth (UNH) was lower after the company trimmed its 2007 revenue forecast.
Companies set to announce quarterly results Tuesday include Cisco (CSCO).
Elsewhere, automaker DaimlerChrysler's (DCX) Chrysler division was reportedly planning to cut 10,000 jobs and close three U.S. factories.
Memory chip interface designer Rambus (RMBS) was sharply higher after the Federal Trade Commission set maximum royalty rates the company may charge. The FTC-imposed caps weren't as low as some analysts feared.
iPod maker Apple (AAPL) settled its dispute with the Beatles over the rights to the Apple trademark.
In analyst calls, Dell (DELL) was higher after Credit Suisse upgraded the computer maker from neutral to outperform.
Barnes & Noble (BKS) was higher after Prudential raised its recommendation on the book retailer from neutral to overweight.
In the energy markets, March West Texas Intermediate crude oil futures fell 28 cents to $58.74 a barrel, giving back early gains on colder weather forecasts.
European markets finished narrowly mixed. The FTSE-100 index in London rose 7 points, or 0.11%, to 6,317.9. Germany's DAX index fell 11.7 points, or 0.17%, to 6,874.06. In Paris, the CAC 40 index edged up 3.81 points, or 0.07%, to 5,681.11.
Asian markets ended mixed. In Japan, the Nikkei 225 index tumbled 202.31 points, or 1.15%, to 17,344.8. In Hong Kong, the Hang Seng index lost 108.06 points, or 0.53%, to 20,455.62. Korea's Kospi index added 4.81 points, or 0.34%, to 1,417.95.
Treasury yields ticked lower, extending recent declines following Monday's ISM non-manufacturing surge. The 10-year note rose modestly in price to 98-20/32 for a yield of 4.8%, while the 30-year bond rose to 93-24/32 for a yield of 4.91%. Last week's bullish Fed statement and technical factors were boosting bond prices, says S&P.