U.S. Stocks Mixed; Retreat From Earlier Gains
NEW YORK (MarketWatch) -- U.S. stocks reverted to mixed Monday, with the broad market losing ahead of key earnings later in the week, while the Dow Jones Industrial Average still advanced in record territory, helped by take-over speculation over Verizon Corp.
The Dow industrials continued its rally from last week towards the key 14,000 level, as investors put money in the stock of multi-nationals that benefit from global growth and a weak dollar.
"The Dow is trying to push a new milestone," said Peter Cardillo, chief market economist at Avalon Partners.
"Usually when you get near a psychological number like that, it takes a day or two for the market to flirt with it before it happens," he added.
The Dow industrials gained 45 points to 13,952, after hitting a new record of 13,989 earlier in the day.
With oil prices down, and the dollar relatively flat, a further downtick in bond yields could be an impetus for pushing the Dow past the 14,000 mark, said Cardillo.
Among the Dow's 30 components, 18 advanced, led by the likes of Verizon , which gained more than 2% on speculation it could be a takeover target, of the UK's Vodafone Group .
Vodafone, however, denied a report in the Financial Times that it's considering a $160 billion offer, as a means of taking control of the jointly held Verizon Wireless venture.
McDonald's Corp. advanced 0.3%, after the fast food giant announced it will take a second-quarter loss related to the sale of some assets, but that its earnings before special charges will be above analysts' expectations.
The broad market, meanwhile, saw broad consolidation of last week's gains.
The S&P 500 declined 2.5 points to 1,550, while the Nasdaq Composite fell 8.5 points to 2,698.
Trading volumes showed 936 million shares exchanging hands on the New York Stock Exchange and 1,279 million on the Nasdaq.
But in a sign that prompted some concern about the market's recent strength, declining issues topped gainers by 2 to 1 on the NYSE, as well as on Nasdaq.
Financials weigh
Financial shares weighed on the market ahead of key earnings from the likes of JP Morgan Chase and Citigroup Inc. , which could reveal an impact from the meltdown in the subprime mortgage market.
"The meat of the earnings season will cover the next two weeks, with the financial sector highlighted this week," Paul Nolte, director of investments, at Hinsdale Associates, said in a note.
"While they are expected to be poor due to the housing and sub-prime mess, the revenues generated from the takeover activity should cushion the blow," he said.
By sector, multimedia and Internet shares were ahead, while oil stocks , banks and brokers dealers fell.
Buck the trend among financial shares on the Nasdaq, Charles Schwab & Co. Inc. gained 0.3%, after Citigroup analysts said that the firm's client assets should surpass current market leader Merrill Lynch .
The vigor of last week's rally baffled some investors, given that the dollar has been hitting historic lows against the pound and euro, while energy prices are climbing.
"This is a head scratcher," said Art Hogan, chief market strategist at Jefferies & Co. "I would say you could make a longer list of negative catalysts in the market than positive ones. But there is a hope that we have successfully orchestrated a soft landing for the economy and that second-quarter earnings will be strong."
"It's very difficult to come up with a rational explanation for this rally," he said. "But there is a lot of liquidity on the sidelines. And liquidity fundamentals are driving this rally."
A weak dollar, meanwhile, continues to boost the shares of multinational companies, whose profits benefit from currency translation, and of any companies which might see higher demand for their products priced in dollars.
Such companies rose strongly on the Dow Monay, including United Technologies Corp. , which climbed more than 2%, and Caterpillar Inc. , both of which report earnings later in the week.
Dollar at multi-year lows
The dollar slid to a 26-year low against the British pound, as the greenback met renewed pressure linked to last week's weak economic data and worries about risky home loans.
More deals
Liquidity, or the availability of cheap money, also continued to fuel deal-making and helped reassure the market in the early goings Monday.
"M&A is still very much in the marketplace," said Avalon's Cardillo.
Besides Verizon, Applebee's International Inc. rose nearly 2% on news the restaurant chain operator is being acquired by IHOP Corp. for about $2.1 billion, the companies said Monday.
Also in merger news, a consortium led by Royal Bank of Scotland on Monday said it will raise the cash component of its $98 billion bid for ABN Amro , as the trio of banks accepted that they won't be able to acquire the Dutch bank's LaSalle business.
The banks revised their offer after the Dutch Supreme Court ruled Friday that ABN Amro could proceed with the $21 billion sale of its LaSalle division to Bank of America .
Merrill Lynch in a research note Monday said that a technically sound summer rally has begun.
"The three major averages -- plus the more broadly based NYSE Composite and Wilshire 5000 indexes -- have all broke out to new bull market highs," the analysts said. "This, plus an array of indicators, suggests still higher highs."
Stocks in Action
ReAble Therapeutics, which is owned by The Blackstone Group agreed to buy DJO Inc., an orthopedics company, of $1.6 billion.
Deutsche Bank analysts in a research note concluded that retailer Macy's Inc. is a good leveraged buyout candidate. "The math works for Macy's to be an LBO candidate," Deutsche Bank analyst Bill Dreher said. He estimated that Macy's can fetch $52 to $54 a share, a 26% premium to Friday's closing price.
Other markets
Treasury prices shot higher, pressuring yields, after another measure of the subprime mortgage sector showed further deterioration of loans made in late 2006. The benchmark 10-year Treasury note was up 9/32 at 95-23/32 with a yield of 5.056%.
Gold futures closed lower, with traders giving back a piece of last week's nearly 2% advance. Gold for August delivery fell $1 to finish at $666.30 an ounce on the New York Mercantile Exchange.
Crude-oil futures fell, but held near $74 a barrel amid continued supply concerns. The August contract declined 13 cents at $73.80.
By Kate Gibson