U.S. Stocks Erase Last Week’s Drop on $21.5 Billion in Takeovers
U.S. stocks rose, erasing last week’s drop, as $21.5 billion in takeovers and valuations near the cheapest level in two years helped the Standard & Poor’s 500 Index extend its best three-day rally since 2009.
Motorola Mobility Holdings Inc. soared 56 percent as Google Inc. (GOOG) agreed to buy the company for about $12.5 billion in cash. Bank of America Corp. (BAC) rallied 7.9 percent on plans to exit the international credit-card business by selling its $8.6 billion card business in Canada to TD Bank Group and leaving the U.K. and Irish markets. Exxon Mobil Corp. (XOM) advanced 3.2 percent, pacing gains in energy companies, as oil climbed.
The S&P 500 added 2.2 percent to 1,204.49 at 4 p.m. in New York and was up 7.5 percent in three days. The gauge traded at 12.9 times reported earnings on Aug. 12, near the lowest valuation level since 2009. The Dow Jones Industrial Average climbed 213.88 points, or 1.9 percent, to 11,482.90.
“We’ve been putting money back in the equity market,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a telephone interview. His firm manages $275 billion. “You’re dealing with oversold levels. I do expect to see more takeover deals. If we don’t go into a recession, we’ve made a low for the year. All the ingredients are there for some kind of bottom.”
The S&P 500 fell 18 percent from the end of April through this year’s low on Aug. 8, when the index closed at 1,119.46. More than $2 trillion was erased from U.S. equity values in the last three weeks amid Europe’s debt crisis, signs the economy is slowing and S&P’s downgrade of the government’s credit rating.
‘Not Out of Bullets’
Benchmark gauges also rose after Federal Reserve Bank of Atlanta President Dennis Lockhart said the central bank could purchase more Treasuries or alter its balance sheet if the U.S. economy were to slow further. “If additional actions are required, I can assure you the Federal Reserve is not out of bullets,” Lockhart said today in a speech in Florence, Alabama.
Fed Chairman Ben S. Bernanke and his policy-making colleagues pledged on Aug. 9 to hold the main interest rate at a record low near zero at least until mid-2013, saying economic growth is “considerably slower” than anticipated. Treasuries dropped today after a three-week rally in government bonds that pushed 10- and two-year note yields to record lows.
“The market is reacting to the relative attractiveness of stocks to bonds,” Jack Ablin, chief investment officer for Chicago-based Harris Private Bank, which oversees $60 billion, said in a telephone interview. “Investors are seeing that company managements are still pretty aggressive with these high- profile acquisitions. It suggests that if management is optimistic, we can be optimistic.”
Motorola Mobility Soars
Motorola Mobility soared 56 percent to $38.12. Motorola shareholders will get $40 a share in cash, the company and Google said in a statement today. That’s 63 percent more than Motorola Mobility’s closing price on the New York Stock Exchange on Aug. 12. Both boards have approved the deal. Google shares dropped 1.2 percent to $557.23.
Bank of America rallied 7.9 percent to $7.76, driving financial stocks higher. The TD Bank transaction is expected to close in the fourth quarter and boost Tier 1 common and tangible common equity ratios, the company said.
Chief Executive Officer Brian T. Moynihan is focusing on retail-banking customers, commercial borrowers and investment banking, and getting rid of unrelated assets to raise capital. The Charlotte, North Carolina-based company, which took a $45 billion government bailout during the financial crisis, has struck deals to sell an insurance unit and mortgage-servicing rights. Bank of America sold its $200 million portfolio of small-business card loans to Barclays Plc in April.
Other banks climbed. JPMorgan Chase & Co. (JPM) added 2.7 percent to $36.88, while Citigroup Inc. jumped 4.8 percent to $31.27. The KBW Bank Index advanced 4.2 percent as all of its 24 stocks gained.
Time Warner Cable Inc. (TWC) fell 0.8 percent to $65.02. The second-largest U.S. cable-television operator agreed to buy Carlyle Group’s Insight Communications Co. for $3 billion in cash to gain customers in the Midwest. The deal may generate cost savings of $100 million within two years, Time Warner Cable said in a statement today.
“Companies have a lot of cash and they are taking advantage of the great valuation out there in what they see as a still good earnings environment,” New York-based Kevin Shacknofsky, who helps manage about $6 billion for Alpine Mutual Funds, said in a telephone interview. “If it happens to a great degree, it will be very beneficial for the market. It will be a strong catalyst.”
Energy shares had the second-biggest gain within 10 industries in the S&P 500, rising 3.4 percent as a group. Exxon Mobil advanced 3.2 percent to $74.29. Chevron Corp. (CVX) increased 3.4 percent to $99.10.
Visa Inc. (V) added 2.4 percent to $85.87 as the biggest payments network was added to the “Conviction Buy” list at Goldman Sachs Group Inc.
The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, tumbled 12 percent to 31.87. The index has fallen 26 percent in three days, the biggest drop since March 21.
Stocks rose today even after a report showed that manufacturing in the New York region contracted for a third straight month in August as orders and inventories dropped. The Federal Reserve Bank of New York’s general economic index fell to minus 7.7 from minus 3.8 in July, a report showed today. The median forecast in a Bloomberg survey called for a reading of zero, the dividing line between expansion and contraction.
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