Stocks Gain after Dubai World Bailoutby
U.S. stocks rose, sending benchmark indexes above their highest closes in 14 months, as Abu Dhabi bailed out a Dubai World unit and Exxon Mobil Corp. (XOM) agreed to buy XTO Energy Inc. (XTO) in the biggest energy takeover since 2006.
XTO surged 15 percent after Exxon Mobil offered $31 billion for the natural-gas producer. Visa Inc. (V) rose 3.3 percent on its addition to the S&P 500, and (JAVA) added 10 percent as Oracle Corp. (ORCL) offered proposals to win approval to buy the company. Citigroup Inc. (C) slid 6.1 percent after striking a deal with regulators to repay $20 billion in rescue funds.
The Standard & Poor's 500 Index rose 0.6 percent to 1,112.46 at 1:43 p.m. in New York. The Dow Jones Industrial Average added 19.73 points, 0.2 percent, to 10,491.23. Both climbed above their highest closes since October 2008. Three stocks rose for each that fell on the New York Stock Exchange.
"We're on a positive path," said Stanley Nabi, New York- based vice chairman of Silvercrest Asset Management Group, which manages $7.5 billion. "The risk of a Dubai bankruptcy with a potential domino-effect has been neutralized. On top of that, we've been having decent economic data. The combination of these things will give us a market that continues to have a positive bias."
Asian and European shares also rallied as Abu Dhabi's $10 billion pledge allowed Dubai World's Nakheel real-estate unit to avoid default on $4.1 billion of bond payments that matured today. Markets tumbled last month as Dubai said it was starting talks with its lenders to restructure debt accumulated during the emirate's six-year real-estate boom.
Giant Step Dubai's pledge to adopt global standards on transparency and creditor protection is a "giant step in the right direction" and the worst of the emirate's debt crisis is over, said investor Mark Mobius, who oversees more than $30 billion as chairman of Templeton Asset Management Ltd., in a phone interview from Riyadh today.
The S&P 500 has rebounded 65 percent from a 12-year low in March after manufacturing and consumer spending increased and the U.S. government lent, spent or guaranteed more than $11 trillion to end the recession. The Wall Street strategists who correctly predicted U.S. equities would rebound from the steepest plunge since the Great Depression now say the S&P 500 will rally 11 percent next year.
Thomas Lee, the chief U.S. equity strategist at JPMorgan Chase & Co., and Goldman Sachs Group Inc.'s David Kostin, this year's most-accurate forecasters, say Federal Reserve interest rates near zero and profit growth of more than 26 percent will drive the S&P 500 to 1,300 and 1,250, respectively, in 2010. The combination of higher earnings and an increase in mergers and acquisitions will boost the index to 1,250, according to Thomas Doerflinger, a senior strategist at UBS AG in New York.
XTO Rallies XTO, the largest producer of natural gas in the U.S., climbed 15 percent to $47.72. Owners of Fort Worth, Texas-based XTO will get 0.7098 share of Exxon for each of their shares, the companies said today in a statement. The transaction, Texas- based Exxon's biggest takeover since the purchase of Mobil Corp. in 1999, values XTO at $51.69 a share, 25 percent higher than its last closing price. Exxon fell 4.3 percent to $69.68.
"The Exxon-XTO deal is helping to lift the market because it's a sign that businesses are spending on growth again," said Jeffrey Kleintop, who helps oversee about $278 billion as chief market strategist at LPL Financial in Boston. "A pickup in M&A activity usually coincides with the return of job growth and that's something investors have been very focused on recently." Visa Visa added 3.3 percent to $84. The credit-card company will join the S&P 500 after the close of trading on Dec. 18. Visa was raised to "outperform" from "neutral" at Robert W. Baird & Co. Inc. The 12-month share estimate is $100.
Sun Microsystems surged 10 percent to $9.23. Oracle pledged to continue investing in the company's competing database software after its planned $7.4 billion purchase of the computer maker was threatened by European Union antitrust regulators.
Philip Morris International Inc. (PM) gained 3.3 percent to $50.09. The world's largest publicly traded tobacco company was added to Goldman Sachs's "Conviction Buy-List," with a 12- month price estimate of $62, on growth prospects.
Raw-material stocks rallied 1.4 percent as the dollar fell, boosting the appeal of commodities as an alternative investment. Freeport-McMoRan Copper & Gold Inc. (FCX) , the world's largest publicly traded copper producer, added 2.5 percent to $78.72.
Citigroup Citigroup slid 6.1 percent to $3.71. The only major U.S. lender still dependent on what the government calls "exceptional financial assistance" will raise funds to pay back its bailout with a sale of $20.5 billion of equity and debt. The New York-based company also plans to substitute "substantial common stock" for cash compensation, the bank said in a statement today.
"Dilution fear," said David Lutz, managing director of equity trading at Stifel Nicolaus & Co. in Baltimore. "They're raising a ton of capital to pay off TARP."
Amazon.com Inc. (AMZN) dropped 2.6 percent to $130.62. The largest Internet retailer may slide if the company is unable to sustain the sales and earnings forecasts reflected in its shares, Barron's reported, without citing anyone.
The S&P 500 is poised to rise above its highest closing level of the past month of 1,110.63 as it breaks out of a so- called consolidation phase, according to MKM Partners LLC.
The index "remained firm within its month-long consolidation phase," said Katie Stockton, chief market technician at Greenwich, Connecticut-based MKM, with the difference between the lowest and highest closing levels not exceeding 2.2 percent since Nov. 11. A crossing of the so-called daily stochastics is a "positive catalyst" and may trigger more gains in the index, she wrote in a report today.
"The period of consolidation has been constructive in that it has relieved short-term overbought conditions without a breakdown below support," Stockton said. "Momentum remains supportive of the S&P 500 from a short- and long-term perspective."