U.S. Stocks Rise On Upbeat Earnings, Sallie Mae LBO
NEW YORK (MarketWatch) - U.S. stocks rallied on Monday, lifted by upbeat earnings from blue-chip stock Citigroup Inc. and by a $25 billion leveraged buyout of educational lender Sallie Mae.
The Dow Jones Industrial Average was up 90 points at 12,702, as 25 of its 30 components advanced. The Dow has now resurfaced above its February 27 level, just before the market took a plunge through early March.
The blue-chip average was lifted by a 2.7% gain in shares of Citigroup , whose operating earnings beat analysts forecasts.
Citigroup's upbeat results also lifted other financial shares on the Dow such as American Express Co. and JP Morgan Chase & Co. .
"With last week's rise, many of the markets are back to within a day or two of the yearly highs and with the promise of better than expected earnings, the markets are once again racing higher," said Paul Nolte, director of investments at Hinsdale Associates, in a note.
"But racing might be a bit strong, if we look at volume as the speed at which everyone is willing to buy stocks," he said.
Market gains have taken place on low volumes while declines have seen high volumes, Nolte said, noting that this indicated more willing sellers than buyers in the market.
The S&P 500 rose 12 points to 1,464, reaching a six and a half year high. The Nasdaq Composite , meanwhile, gained 19.8 points to 2,511.
Trading volumes showed 510 million shares exchanging hands on the New York Stock Exchange and 600 million shares trading on the Nasdaq stock market. Advancing issues outpaced decliners by 22 to 7 on the NYSE and by 19 to 7 on the Nasdaq.
By sector, banks , broker/dealers and broad financials led the gains.
Also boosting financials, Wachovia Corp. gained 2% after its earnings topped analysts forecasts.
Among falling sectors were semiconductors , natural gas and oil shares , including Exxon Mobil Corp. .
On Friday stocks posted gains on the day and week, benefiting from upbeat earnings and forecasts from blue-chip stocks, including Merck & Co., General Electric Co. and McDonald's Corp. .
The positive momentum extended into Monday's session, as investors first found encouragement in the latest batch of earnings reports and merger announcements.
Monday mergers
Continuing the flow of leveraged money taking publicly-traded companies private, an investor group led by J.C. Flowers & Co. reached a deal to buy Sallie Mae parent, SLM Corp., for $25 billion, or $60 a share.
Sallie Mae shares jumped 17.6% to $55. The stock of the educational financing provider already gained 15% on Friday, following initial reports of a potential buyout. After the deal closes, the company will remain subject to oversight by Congress and the Department of Education.
In other merger news, Quest Diagnostics Inc. fell 4.5% after news that it is buying closely held AmeriPath Inc., which provides diagnostic services.
Oil, rising rates could cloud horizon
Monday's early optimism, however, could soon meet a barrage of concerns, according to Marc Pado, market strategist at Cantor Ftizgerald. "Once the initial dust settles, investors will have to keep an eye on oil and interest rates. Those are two bearish pulls on the market," he said.
Amid slowing economic growth -- and slowing earnings growth -- investors had been hoping that the Federal Reserve would soon step in and cut interest rates to stave off a hard landing of the economy.
But inflationary pressures - including from employment and rising energy prices - have dampened those hopes. Meanwhile, rising gasoline prices also cuts into consumer spending.
"While [oil and rates] are not on the front burner at the moment, they are simmering in the background," Pado said. "If one or the other begins to boil over, it will be a negative distraction for investors. Today, we're looking for some cosolidation with an upward bias to start."
On Monday, at least, crude oil prices fell, while bonds rose, helping keep market rates contained.
Crude-oil futures reversed early gains made amid concern that unrest during Nigeria's approaching presidential elections may disrupt oil supply. A barrel was last down 81 cents at $62.82. The contract lost 1% last week.
And after reversing direction several times, the benchmark 10-year Treasury bond was up 8/32 at 99 4/32 with a yield of 4.745%.
Bonds, which react negatively to inflation, rose after news that manufacturing activity in the New York area rebounded only marginally in April. The Empire State Manufacturing index inched higher to 3.8 in April from 1.9 in March, while economists expected a rebound to 7.6 after the index's 22-point plunge in March.
Meanwhile, news that retail sales picked up in March was offset by the fact that most of the gains came from higher gasoline prices.
The dollar fell against the euro, while it rose against the yen. The Japanese currency fell across-the-board after the Group of Seven leading industrial nations failed to address the weakness in the Japanese currency at their weekend meeting.
Gold futures were pressured by falling crude oil prices. Gold for June delivery fell $1.10 to $688.90 an ounce on the New York Mercantile Exchange.
Stocks on the move
Eli Lilly gained 1.4%. The pharmaceutical company reported a drop in first-quarter profit amid acquisition-related charges and costs from a settlement of product-liability litigation, though sales rose 14%.
Amgen Inc. was 1.6% higher. The company received an upgrade to overweight from equal weight from Morgan Stanley.
Toy maker Mattel Inc. posted a 60% decline in first-quarter profit, hurt by a year-ago tax benefit, but strength in its Fisher-Price and Hot Wheels brands as well as its games business helped it beat Wall Street expectations. The stock rose 1.5%.
By Nick Godt