By Wallace Witkowski and Polya Lesova, MarketWatch
SAN FRANCISCO (MarketWatch) -- U.S. stocks traded mostly higher
on Thursday afternoon, as investors mulled mixed economic data on a
banner day for mergers and acquisitions.
Two of the three major stock indexes edged higher.
The Dow Jones Industrial Average (DJI) was the exception. The
benchmark fell 8.90 points, or less than 0.1%, to 13,974.01, with
18 out of 30 components declining. The Dow had been down as much as
0.4% earlier in the session.
Cisco Systems Inc. (CSCO), weighed on the index with shares down
1.1%. Cisco late Wednesday reported a small gain in earnings for
its fiscal second quarter.
In economic news, U.S. jobless claims dropped by 27,000 to
341,000 in the week ended Feb. 9, according to the Labor
Department. Economists surveyed by MarketWatch expected a much
smaller drop.
"Overall the feel is that the labor market is improving as
evidenced by a dip in the number of insured claims amongst
claimants, which eased to 2.4% from 2.5%," said Andrew Wilkinson,
chief economic strategist at Miller Tabak, in emailed comments.
"This measure tracks the national rate of unemployment and portends
further declines ahead."
International economic news, however, was bleak. Gross domestic
product in the 17-nation euro-zone contracted by 0.6% compared with
the third quarter and fell 0.9% from the fourth quarter of 2011,
the European Union statistics agency, Eurostat, reported
Thursday.
And in Japan, real GDP shrank at an annualized rate of 0.4% in
the October-December quarter from the preceding three months, with
the result countering expectations for growth in GDP.
M&A splash counters economic data
Aside from economic data, a rash of deals announced over the
past 24 hours stole the spotlight.
H.J. Heinz Co. (HNZ), the food company known for its ketchup,
agreed to be acquired by Warren Buffett's Berkshire Hathaway Inc.
(BRKA) (BRK/A) and 3G Capital in a deal valued at $28 billion,
including debt. Heinz shareholders will receive $72.50 per share in
cash, a 20% premium to Heinz's closing price of $60.48 on
Wednesday. Shares of Heinz rallied 20%.
In the airline sector, the parent of American Airlines, AMR
Corp. (AAMRQ), and US Airways Group Inc. (LCC) confirmed plans to
merge and create the world's biggest air carrier. US Airways shares
declined nearly 10%.
In the consumer-staples sector, Constellation Brands Inc. (STZ)
shares surged more than 37%. Beer giant Anheuser-Busch InBev NV
(AHBIY) and Constellation said they've agreed on new terms for AB
InBev's full divestiture of the U.S. assets of Mexico's Grupo
Modelo SAB de CV.
The recent pop in mergers and acquisitions activity shows that
money on the sidelines is becoming more expensive, said Doug
Sandler, chief equity officer at Riverfront Investment Group.
"For retail investors, there's a real cost to having your money
on the sidelines," Sandler said. "Corporations are just saying: 'I
can't sit on this cash anymore.' Money sitting around doing nothing
subtracts return on equity."
Post-recession, it's no longer acceptable for a corporation to
have more than 10% of its value tied up in cash, Sandler said. This
much was evidenced by the suit brought against Apple Inc. (AAPL) by
activist investor David Einhorn.
That same M&A activity, however, may also be worrying
investors that markets are peaking, said John Canally, chief market
strategist at LPL Financial, who forecasts a "mini pullback" of
about 5% to 7% in the near future. That would follow a 6% run-up in
stocks in January alone.
"From a macro perspective, people are saying this rally's
getting tired and we're due," Canally said, noting that the market
is well past the average amount of trading days without a 10%
correction.
Trouble with sorting out automatic spending cuts due to take
effect soon may be the catalyst for a pullback, Canally said.
Unless Congress takes action, deep spending cuts in defense and
other important federal programs, which are known as the sequester,
will go into effect on March 1.
The S&P 500 index (SPX) rose 1.71 points, or 0.1%, to
1,522.04, after falling as much as 0.4%. Telecom stocks were the
biggest decliner and energy led gains among the benchmark's 10
major industries.
The Nasdaq Composite Index (RIXF) advanced 3.14 points, or 0.1%,
to 3,200.05, after being down as much as 0.5% earlier.
Declining stocks outnumbered advancers on the NYSE by about 15
to 14, while advancers outpaced decliners by about 12 to 10 on the
Nasdaq. Composite volume for NYSE-listed stocks topped 2.5 billion
shares, while it surpassed 1.3 billion for Nasdaq-listed
shares.
CenturyLink Inc. was the largest decliner in the S&P 500.
Its shares (CTL) dropped more than 21% after the landline provider
slashed its dividend and authorized a $2 billion stock buyback
plan. The moves triggered negative actions from rating
agencies.
Nick Beecroft, senior market analyst at Saxo Capital Markets,
said weak European growth was contributing to weaker sentiment and
the market was also a little unnerved by "brewing discontent about
currency wars."
The Wall Street Journal reported that George Soros and other
hedge-fund managers are making huge profits by betting on a weaker
yen.
The dollar index (DXY), which tracks the performance of the
greenback against a basket of other major currencies, rose to
80.454 from 80.091 late Wednesday. The euro (EURUSD) dropped to
$1.3349 from $1.3446.
Treasurys rose, with the yield on the 10-year note (10_YEAR)
down 5 basis points to 2.01%, following an auction of 30-year
bonds.
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