Stocks finished higher Tuesday as a rekindling of merger and acquisition activity and strong commodity prices bolstered investors' enthusiasm about the economy. Energy, mining and basic materials were among the best performing groups.
Gold futures touched a high of $1,009.70 per ounce in morning trading on the New York Mercantile Exchange, before finishing up $1.10 to $997.80. Gold prices have surged in the last week amid the outlook for extremely low interest rates, soaring fiscal deficits, and talk of central bank diversification. China has indicated that it could diversify some of its interests into gold, adding to the bullish tone.
On Tuesday, the 30-stock Dow Jones industrial average rose 56.07 points, or 0.59%, to 9,497.34. The broad Standard & Poor's 500-stock index gained 8.99 points, or 0.88%, to 1,025.39. The tech-heavy Nasdaq composite index was up 18.99 points, or 0.94%, to 2,037.77.
Crude oil futures also moved higher, to $71.31, supported by a weaker dollar index and rising equity markets.
The dollar index fell 1% to a 16-month low of 77.04. Action Economics said the there was talk of the near term potential for dollar reserves to be pared down, with China mentioned on this front. Last night, the U.N. called for a global currency to replace the U.S. dollar.
Treasuries were lower in price, with the 10-year notes yielding 3.469%.
Over the weekend, the G20 nations pledged to keep supporting the global economic recovery with stimulus efforts.
In economic news Tuesday, U.S. consumer credit plunged a record $21.6 billion in July after falling $15.5 billion in June (revised from a decline of $10.3 billion). This is the sixth straight month of declines, the longest since 1991 as lending conditions remain very tight, says Action Economics. Revolving credit fell $6.1 billion as consumers are shunning their credit cards and repaying debt to repair their balance sheets as labor market woes deepen, says Action Economics. Non-revolving credit collapsed, tumbling $15.4 billion.
Coming Wednesday is the Federal Reserve's Beige Book, which describes conditions across the 12 Fed regions. It is expected to reflect ongoing modest improvement in the economy, especially manufacturing and vehicle sales, consistent with the pick up in recent data, says Action Economics. Nevertheless, growth concerns, especially amid a weak labor market, will still be present, says Action Economics.
Some market watchers see more gains for stocks, after the roughly 50% jump from the March lows. Tobias Levkovich, chief U.S. equity strategist at Citigroup (C), sees the S&P 500 spiking above 1,100 in 2010, with strength in the beginning part of the year.
"Gains are likely in 2010 but are expected to be uneven and could spike above 1,100 during earlier parts of the year and then back off," Levkovich wrote in a note Tuesday. "Markets should benefit from a backdrop of earnings recovery first determined by the moderation of inventory de-stocking leading to some inventory re-stocking, a better (though still subdued) employment environment, and the consumption benefits of some restored wealth via higher financial markets."
In merger news Tuesday, shares of Cadbury PLC (CBY) soared, while Kraft (KFT) got crushed after Cadbury's board rejected a takeover bid from Kraft. Over the weekend, Kraft has made a proposal to combine the two companies, bidding 300 pence in cash and 0.2589 new KFT share per CBY share. Kraft says this values each CBY share at 745 pence (based on Sep. 4 closing price of $28.10 for Kraft stock and an exchange rate of 1.6346 $/GBP) and values the entire issued share capital of CBY at GBP 10.2 billion.
American International Group (AIG) shares fell after the company annouced a deal to sell a portion of its investment advisory and asset management business to Bridge Partners, L.P., a company owned by Pacific Century Group, for about $500 million. AIG is retaining its in-house investment operation that oversees about $480 billion of assets under management. Credit Suisse downgraded AIG to underperform and cut its target price to $15.
Chartered Semiconductor Manufacturing Ltd. (CHRT) agreed to be acquired by Advanced Technology Investment Co. LLC of Abu Dhabi (ATIC) in a $1.8 billion deal. The estimated amount of consideration for each ADS is $18.64; the actual amount will depend on the applicable prevailing exchange rate, less the amount of applicable ADS depositary's fees, taxes and expenses. Separately, Chartered raised $388 million (+/- $6 million) third quarter midpoint revenue guidance to $410 million (+/- $5 million) and narrows third quarter $0.26 basic loss per share (+/- $0.05) to $0.07 loss (+/- $0.04).
Smithfield Foods (SFD) reported a fiscal first quarter loss of $0.56 per share, excluding nonrecurring items, a penny worse than the First Call consensus of a loss of $0.55. Revenues fell 13.6% year-over-year to $2.72 billion, shy of the $2.82 billion consensus. The pork producer said that the hog production industry "will very likely continue to incur losses until an industry-wide liquidation occurs."
General Electric (GE) moved up after JP Morgan reportedly upgraded the stock to overweight.
Harley-Davidson (HOG) shares also rose, fueled by an upgrade at Citigroup.
Shares of McGraw-Hill Companies (MHP) (which owns Standard & Poor's and BusinessWeek) lost 8% and Moody's (MCO) continued to fall following last week's ruling whereby a judge rejected the credit ratings agencies' claim that their opinions are free speech protected.
Osiris Therapeutics (OSIR) shares skidded after the company announced preliminary results for two phase III trials evaluating Prochymal for the treatment of acute graft versus host disease (GvHD). It says Prochymal showed significant improvements in response rates in difficult-to-treat liver and gastrointestinal GvHD, however, neither trial reached its primary endpoint.