Wall Street overcame its recent caution today, with a raft of acquisitions propping up US stocks and lower-than-expected gross domestic product growth easing inflation fears.
Acquisitions in the technology and pharmaceutical industries promised to reinvigorate those lagging sectors. Google, Seagate Technologies and IBM all announced major purchases, while Allergan said it would buy Inamed.
And while final third-quarter GDP was lower than anticipated, with the economy growing at an annualised rate of 4.1% instead of the expected 4.3%, investors welcomed the news as another sign that the Federal Reserve would be hard pressed to continue raising interest rates. The 4.1% growth rate was still considered strong.
Yet despite the good news, stocks still saw a downturn in afternoon trading, giving up more substantial gains from earlier in the session. While stocks are not expected to give up the year’s modest gains, a further substantial push higher remains in doubt.
“We’re definitely picking up some momentum going into year’s end, but that’s not really translating into any sense of urgency,” said Hugh Johnson, chairman and chief investment officer at Johnson Illington Advisors in Albany, New York. “People are content to hold on to some cash and not be fully invested.”
The Dow Jones industrial average rose 28.18, or 0.26%, to 10,833.73. The Dow had been more than 94 points higher earlier in the session.
Broader stock indicators also moved higher. The Standard & Poor’s 500 index climbed 3.17, or 0.25%, to 1,262.79, while the Nasdaq composite index added 9.24, or 0.42%, to close at 2,231.66.
Bonds continued the previous session's sell-off, with the yield on the 10-year Treasury note rising to 4.49% from 4.47% late on Tuesday. The dollar rose against most major currencies, while gold prices edged higher.
Crude oil futures were little changed after the Energy Department reported a slight rise in the nation’s crude oil stockpiles. A barrel of light crude was quoted at US$58.55 (€49.47), down a penny, on the New York Mercantile Exchange.
With just six trading days to go before 2006, the year should end with modest gains, as opposed to 2004’s strong year-end rally. However, that could make early 2006 a little better.
“We sold off pretty heavily in January coming off last year’s rally, and I don’t think we’ll see as much of that in 2006,” said Joseph Battipaglia, chief investment officer at Ryan Beck & Co. “This year’s start could be a little more bullish, and you still have lots of companies sitting on a lot of cash that can be put to use in 2006.”
The acquisition deals fuelled plenty of trading activity today. Despite posting early gains, Google fell 3.41 to 426.33 after winning the bidding war for a piece of Time Warner’s America Online division, paying 1bn for a 5% stake.
Time Warner lost 16 cents to 17.58, while Microsoft, which had hoped to edge out its online rival for the stake, slipped 13 cents to 26.73.
Dow industrial IBM added 64 cents to 83.12 after announcing the purchase of Micromuse, which makes software to manage video and voice traffic on computer networks, for 865 million in cash, or 10 per share. Micromuse surged 2.71, or 38%, to 9.92.
In the pharmaceutical sector, Inamed climbed 1.26 to 87.02 after Allergan, best known for its Botox skin treatment, agreed to pay up to 3bn for the medical device maker. Inamed shareholders can opt for 84 per share in cash or a stock swap. Allergan gained 71 cents to 107.31.
Shares of sporting goods maker Nike tumbled 2.73 to 85.75 after the company posted a 15% increase in quarterly profits, but warned that future orders were lagging. The company beat quarterly profit projections by 11 cents per share.
Advancing issues outnumbered decliners by about 5 to 3 on the New York Stock Exchange, where volume came to 1.52bn shares, compared to 1.47bn traded on Tuesday.
The Russell 2000 index of smaller companies rose 6.96, or 1.03%, to 679.74.