U.S. stocks bounced higher to end Monday in record territory as M&A activity continued, and markets barely flinched at an overnight sell-off in Chinese stocks.
China's leading stock index plunged 8.26% on worries the government was planning higher taxes to cool down stocks. Martin Jansen of ING Investment Management says the Chinese stock market is like "a little sealed hothouse," insulated from both global markets and even the broader Chinese economy. Foreigners generally can't buy on Chinese markets, so most buying has been by retail domestic investors who have few other options for their money.
Monday's drop was the second major decline in Chinese stocks in a week. Chinese firms listed on exchanges in Hong Kong and elsewhere have not seen the same wild fluctuations. European indexes were off slightly on Monday, but most Asian stock markets outside China moved up.
Jansen said Chinese stocks could continue to fall. Despite moving more than 15% off its highs, the Chinese markets are up 37% this year, after rising 130% last year. Expect the Chinese government to keep trying to rein in "unbridled speculation," Jansen says. "Authorities would like to see a somewhat deeper correction to educate their investor base" about the risks of investing in stocks. Even before the government took action last week, raising a stock transaction tax from 0.1% to 0.3%, markets were "ripe and ready for a reaction anyway," Jansen says.
In economic news Monday, U.S. factory orders rose 0.3% in April, slightly below estimates. More economic data is expected this week. An eagerly awaited report on the U.S. trade deficit in goods and services arrives Friday. The ISM service sector index, and productivity growth and unit labor cost data are due out on Wednesday.
On Monday, the Dow Jones industrial average was up 0.06%, or 8.21 points, at 13,676.32. The broader S&P 500 index, was up 0.18%, or 2.84 points, at 1,539.18. Both surpassed last week's records.
The tech-heavy Nasdaq Composite index moved up 4.37 points, or 0.17%, to 2,618.29.
In the energy markets, July crude oil futures on the NYMEX were up $1.13 to $66.21 a barrel. Nigerian unions plan to support an oil workers strike, pushing prices higher, Standard & Poor's says. Action Economics says traders worried that a tropical storm in the Indian Ocean could disrupt oil shipments.
Among stocks in the news on Monday, Wal-Mart (WMT) moved higher after several analysts upgraded the stock. At Friday's annual meeting, Wal-Mart announced a number of changes in strategy, including a slowdown in new store openings and a $15 billion stock buyback program.
Scholastic Corp. (SCHL) was up 13% after it reached a deal with Deutsche Bank for a $200-million accelerated stock repurchase program.
Northrop Grumman (NOC) moved higher after it won a $2.4 billion U.S. Navy contract to build an amphibious assault ship.
Flextronics International (FLEX) agreed to acquire Solectron (SLR). The $3.6 billion deal offers 0.345 Flextronics shares or $3.89 in cash per Solectron share, a 15% premium on Friday's closing price. Rival contract electronics manufacturers, Flextronics traded lower but Solectron was up more than 15%.
Qiagen (QGEN) agreed to buy Digene (DIGE) for either $61.25 in cash, a 37% premium on Friday's closing price, or 3.545 Qiagen shares per Digene share. Qiagen was down more than 10%, but Digene was up more than 25%.
Health Care Property (HCP) was down slightly after saying it will buy Slough Estates USA for $2.9 billion in cash, including $1.2 billion of Slough's debt.
Palm Inc. (PALM) was up after announcing a deal in which a private equity firm will buy a 25% stake in the firm and shareholders will get a $9 per share cash distribution.
Apple (AAPL) was moving up after it confirmed its iPhone will be available on June 29.
Laureate Education Inc. (LAUR) was up after investors led by the firm's chairman and CEO increased their offer to buy the firm to $3.82 billion, or $62 per share. The stock closed at $60.11 on Friday.
1-800 Contacts (CTAC) traded almost 20% higher after it agreed to be bought by Fenway Partners in a $340 million deal. The terms were $24.24 for each share, a 20% premium over Friday's closing price.
Accredited Home Lenders (LEND) was trading higher after it agreed to be purchased for $400 million by a private equity firm, Lone Star Funds, for $15.10 per share, a 10% premium.
European stock markets were down on Monday. In London, the FTSE 100 index was down 0.25% to 6,659.90. Germany's DAX index was off 0.24% to 7,968.40. In Paris, the CAC 40 index moved 0.75% lower to 6,121.65.
Asian markets were mostly up, except in China. In Japan, the Nikkei index edged up 0.08% to 17,973.42. In Hong Kong, the Hang Seng Index was up 0.62% to 20,729.59. China's Shanghai Composite index fell 8.26% to 3,670.40 on fears that the government would impose more taxes to cool off China's overheated stock market.
Treasury notes moved higher on Monday. The 10-year Treasury notes rose 05/32 to 96-22/32 for a yield of 4.93%, and the 30-year bond rallied 15/32 to 95-26/32 for a yield of 5.02%.