U.S. Stocks Mixed Amid Delayed Reaction To Jobs Data

NEW YORK (MarketWatch) -- U.S. stocks were mixed Monday, as investors kept a cautious tone ahead of what is expected to be a weak first-quarter earnings season, while sentiment was only modestly boosted by deal news and a delayed reaction to Friday's stronger-than-expected jobs report.

"People are reevaluation what the jobs report means for inflation, interest rates, and for earnings," said Paul Nolte, director of investments at Hinsdale Associates. "It's not good at all for inflation and it keeps the [Federal Reserve} under pressure to keep rates higher."

Earnings, meanwhile, are already on a downtrend and might get squeezed even more by higher labor costs, he said.

The Dow Jones Industrial Average was up 3 points at 12,564, with its 30 components evenly split between gainers and losers.

Shares of Intel Corp. and Dupont were leading the gains.

The S&P 500 rose 0.7 points to 1,444, while the Nasdaq Composite fell 3.1 points to 2,468.

Tech shares were hit after Advanced Micro Devices lowered its first-quarter revenue forecast and said it would aim to cut $500 million in capital spending in 2007.

AMD, which has lost 40% since the start of 2007, rebounded 4% on the news, while semiconductor equipment makers such as Applied Materials Inc. and KLA Tencor Corp. fell.

Money to the rescue

The main boost to the market Monday came from reports of another huge leverage buyout, keeping intact the recently heavy flow of deal news.

Dow Chemical Co. jumped 6% after an unsourced report in the U.K.'s Sunday Express said a buyout approach of the firm is days away. The paper said the break-up bid for Dow Chemical would be between $52 and $58 a share, against Friday's close of $44, and values Dow Chemical at a minimum of $50 billion.

Ongoing mergers and acquisition activity remains the key factor behind the market's momentum, according to Hinsdale's Nolte.

"It seems as if no company is immune, so investors are piling in to guess the next buyout," he said, noting recent news that Chrysler Corp. has been put on the auction block by DaimlerChrysler AG .

"Hedge funds have raised enormous amounts of cash that can be levered multiple times over; pushing whatever market they wish to play in that much higher."

In other deal news, Dow component Citigroup was little changed after saying it will buy Taiwan's Bank of Overseas Chinese for about $426 million in cash. The deal is expected to close in the second half of 2007. .

Citigroup is also looking to hire veteran Wall Street executive Vikram Pandit as head of its alternative-investments unit, and may buy his India-oriented Old Lane LP hedge fund in a deal that could exceed $600 million.

Jobs surprise

With the stock market closed for the Good Friday holiday, investors were also given their first chance to react to a stronger-than-expected jobs report.

The U.S. Labor Department said Friday that nonfarm payrolls expanded by 180,000 in March, while the unemployment rate slipped to 4.4% from 4.5%. Economists surveyed by MarketWatch were expecting jobs growth of 168,000 and a jobless rate of 4.5%, on average. .

Still, beyond the delayed knee-jerk reaction about jobs growth, investors returned to immediate concerns about the upcoming earnings season, according to Marc Pado, market strategist at Cantor Fitzgerald.

Earnings season officially kicks off after Tuesday's closing bell with Dow component Alcoa's results.

The record run of 14 straight quarters of double-digit percentage earnings growth for the S&P 500 companies is expected to come to an end in the first quarter, with growth expected to be around 3.8%, according to Thomson Financial.

"Weakness in several leading economic indicators suggests times were tough well into March," Cantor Fitzgerald's Pado said. "However, the market must also face another uncertainty: wages."

With wage rising 0.3% in March while the economy continued to slow, productivity has likely slipped, which means bad news for corporate profits.

"That means the higher costs will need to be pushed on to the consumer, of which we really haven't seen strong evidence, or be absorbed by corporate profits," said Pado. "Since the latter seems the most likely, this jobs report and the official start of the earnings season should represent a bit of apprehension for investors."

Other markets

Volumes were light in Monday's pre-open, as European bourses were still closed for the Easter holiday but Asian markets enjoyed sharp gains. .

The foreign exchange market was open Friday, and the dollar rallied against both the yen and the euro after the jobs report, from 118.71 and $1.3426, respectively, late Thursday. .

The dollar was little changed Monday, rising slightly against the euro and falling slightly against the yen.

The U.S. Treasury market was also open Friday, and was knocked lower on the data, with the yield on the 10-year Treasury note rising to 4.75%. .

The economic data calendar was bare on Monday. .

May crude oil futures slipped 43 cents to $63.85 a barrel in electronic trading, and June gold futures eased $1.70 to $677.70 an ounce.

Among oil shares, Lehman Bros. downgraded Murphy Oil to equal weight from overweight, citing valuation and rising costs. Hess Corp. was downgraded to underweight from equal weight, also for valuation and concerns that finding and development costs were exceeding cash flow.

More trouble for lenders?

Shares of American Home Mortgage plunged 16% after the company cut its earnings outlook by more than 25%, citing problems in the secondary market for home loans and mortgage-backed securities. The company also slashed its quarterly dividend by about 38%.

Lehman Bros. followed by downgrading the stock to equal weight from overweight, and cutting its price target to $20 from $45. Citigroup cut its rating to sell from hold and its price target to $19 from $26.

In housing news, Dominion Homes said Friday that it sold 218 homes with a sales value of $43.5 million in the first quarter, down from 475 homes with a sales value of $89.3 million a year earlier.

Elsewhere, Sanmina-SCI shares fell 4.5% after the electronics contract manufacturer warned the fiscal second-quarter revenue would miss its previous estimate due to weak demand in the communications and high-end computing end markets.

Shares of Ariad Pharmaceuticals tumbled 10.5% after the company said late Thursday that it may delay patient enrollment for its Phase III trial for cancer drug AP23573 to the third quarter from the second quarter.

By Nick Godt