M&A Activity Seen Keeping The Bulls In Charge

SAN FRANCISCO (MarketWatch) -- U.S. stocks will rise next week, bolstered by investor hopes that a recent run of mergers and acquisitions activity will persist, and give bulls a reason to buy during a lull for corporate earnings and economic data, strategists said.

Equities should have room to extend gains during a week that market professionals forecast to be quiet, with just 16 companies in the S&P 500 Index , including Lowe's Cos. , Target Corp. and Medtronic Inc. , set to release quarterly results.

Three economic reports are on the schedule: durable-goods orders and sales of new and existing homes. But strategists noted that those figures would have to substantially miss expectations to throw stocks off track.

"With the absence of heavy economic data, with the earnings season over and the preannouncement season not yet here, I think it will completely be a deal-driven market" next week, according to Jim Awad, chairman at Awad Asset Management.

The market this past week overcame periods of consolidation and remained charged by news of impending corporate tie-ups, including a $6 billion agreement by Microsoft Corp. to acquire aQuantive Inc. and DaimlerChrysler AG's deal to sell 80% of its Chrysler unit. Renewed speculation of a possible break up of Citigroup Inc. also boosted the financial services firm's shares.

While the general investing public doesn't know which deals will be announced, Awad said that investors certainly know there are "huge amounts of private-equity money that has been called and not yet deployed."

They also know that "corporations with tremendous cash on the balance sheets [are] trying to reposition themselves strategically, and in some cases prevent themselves from being private-equity targets," he added.

Private-equity funds raised a record $102.9 billion in 2006, according to data from Thomson Venture Economics and the National Venture Capital Association.

"There's still money on the sidelines that needs to come in, and maybe some of it will come in next week," said Alfred Kugel, senior investment strategist at Atlantic Trust/Stein Roe.

The focus on deals also comes as earnings season slows to a trickle.

"We've had a constant run of better than expected earnings, but basically we've got all of them now, and I don't see [earnings] as a major factor" next week, according to Kugel.

Almost 460 S&P 500 companies already have posted results. The first-quarter earnings growth rate slipped to 8.1% from 8.5% last week, in large part due to revised year-ago results by technology giant Hewlett-Packard Co. , according to Thomson Financial.

The estimate for second-quarter earnings growth edged up to 3.3%, from 3.2%.

The report on new home sales in April will arrive Thursday from the Commerce Department. Economists surveyed by MarketWatch expect those sales to fall to 840,000 from 858,000 in March. April existing-home sales are forecast to fall to 6.08 million from 6.12 million in March. The report is due Friday from the National Association of Realtors.

Joe Battipaglia, chief investment officer at Ryan Beck & Co., said that he doesn't foresee those housing reports moving the market, considering that investors brushed off Wednesday's report on building permits, which reflects conditions of future activity in the sector.

"The permits ... numbers were horrible, yet the stock market still hit new highs," he commented.

Building permits fell 8.9% to 1.429 million in April, which is the largest percentage decline in 17 years and the lowest reading in nearly a decade.

"The attitude overall is that the economy is still growing ... that employment and payroll data is still positive and therefore investors are positive in their outlook, despite the ongoing weakness in housing that has yet to bottom," said Battipaglia.

On Thursday, the Commerce Department will release its figures o durable-goods orders in April. Economists surveyed by MarketWatch expect a decline of 0.2% compared with an increase of 3.7% in March. But a tally of other surveys expect orders to rise 1%, reflecting a strengthening in capital spending.

Kugel counts himself among those expecting at least a "reasonably decent" increase in the orders figures. "The [Institute of Supply Management] survey and other numbers suggest that orders are going to pick up. We'll have a chance to test that next week. If we don't get [an increase], that might suggest that one other part of the economy is not doing as well as it should be."

Unless the durable-goods report comes in unusually weak, Kugel doesn't expect it to have much impact on trading.

"It wouldn't surprise me ... that next week is another up week," added Battipaglia. "Technicians will tell you that we're getting into an exhaustion phase here, that we're far removed from moving averages. ... But those kinds of dislocations can last for quite a while yet."

Friday's market

Efforts by authorities in China to cool down the economy, including an interest-rate hike and a widening in the trading band for the yuan, didn't prevent U.S. stocks from powering higher on Friday. The Dow Jones Industrial Average surged 79 points to a record of 13,556. The blue-chip average rose 1.7% for the week.

The S&P 500 finished at its highest level since March 24, 2000, up 10 points to 1,522. The broad average is five points away from its all-time high.

The tech-heavy Nasdaq Composite Index rose 19 points to 2,558, but the pressure it fell under during previous sessions left the index down 0.2% for the week.

Japan's yen rose against the dollar on Friday while the greenback rose against the euro.

Bonds fell after the University of Michigan's consumer-sentiment index unexpectedly rose in April. The yield on the benchmark 10-year Treasury note rose to 4.757% and reached its highest level since February during the session.

Crude-oil prices ticked up 8 cents to close at $64.94 a barrel Friday, and packed on roughly 4% for the week.

Gold futures rose $4.80 to $662 an ounce. However, prices for the precious metal dropped more than $10 for the week.

By Carla Mozee