Stocks Jump on Falling Bond Yields
Wall Street advanced sharply Monday in the first day of trading for the third quarter, boosted by a decline in Treasury yields, a rise in June manufacturing activity and a spate of buyout news.
The Dow Jones industrial average briefly gained more than 100 points after the Institute for Supply Management's June manufacturing index came in at 56.0, slightly higher than the market expected and indicating stronger expansion than May's reading of 55.0. The report also showed a decrease in its prices paid index, suggesting that inflation pressures lifted a bit last month and easing some of the market's worries about the Federal Reserve's interest rate policy.
As inflation concerns lessened, the 10-year Treasury note's yield fell to 5.01 percent from 5.03 percent late Friday, dampened additionally by investors flocking to the safe-haven assets amid ongoing jitters about subprime lending. In mid-June, Bear Stearns & Cos. had to bail out a hedge fund with investments tied to subprime mortgages.
"There's a little positive to the subprime woes, that being that interest rates are dropping now," said Steven Goldman, chief market strategist at Weeden & Co. in Greenwich, Conn. "Ten-year rates are now back to about 5 percent."
The 10-year Treasury note's yield breached the 5 percent level in early June for the first time since last year, hit a peak of nearly 5.30 percent, and have since retreated. High rates can hamper deal making.
Investors were also enthusiastic about new takeover activity, involving such targets as Canadian telecommunications company BCE Inc., rural wireless provider Dobson Communications Corp., British telecommunications comapny Virgin Media Inc. and nursing-home chain Manor Care Inc.
In early afternoon trading, the Dow rose 89.01, or 0.66 percent, to 13,497.63, after soaring more than 100 points in earlier trading.
Broader stock indicators also rose. The Standard & Poor's 500 index gained 10.57, or 0.70 percent, at 1,513.92, and the Nasdaq composite index jumped 22.56, or 0.87 percent, at 2,625.79.
The combination of retreating yields and reports of fresh buyout activity gave some relief to investors who were worried about business slowing down due to high rates.
BCE rose $1.60, or 4.2 percent, to $39.39 after news over the weekend of a $32.6 billion buyout offer - the biggest Canadian takeover ever - from a consortium led by the Ontario Teachers Pension Plan Board.
AT&T Inc. on Friday agreed to buy Dobson for $2.8 billion. Dobson rose $1.29, or 11.6 percent, to $12.40 on Monday, and AT&T rose 24 cents to $41.71.
Virgin Media confirmed Monday it received a buyout offer, following reports that private-equity firm the Carlyle Group had bid more than $11 billion for the company. Virgin Media soared $4.54, or 18.6 percent, to $28.91.
The Carlyle Group also made an offer Monday for Manor Care, valued at $4.9 billion. Manor Care slipped $1.08, or 1.7 percent, to $64.21.
Crude oil futures on the New York Mercantile Exchange rose 17 cents to $70.85 a barrel Monday, after closing above $70 a barrel twice last week, a level not seen since last August.
The dollar was higher against other major currencies, while gold prices rose.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 725.3 million shares.
Trading volumes are fairly low ahead of the Independence Day holiday on Wednesday, when U.S. stock exchanges will be closed. The markets are also closing early on Tuesday.
No major earnings reports are scheduled to be released this week, but investors will keep an eye out for profit warnings ahead of the second-quarter earnings season, which starts the third week of July.
The Russell 2000 index of smaller companies rose 8.18, or 0.98 percent, to 841.88.
Overseas, Japan's Nikkei stock average rose 1.15 percent. Britain's FTSE 100 fell 0.26 percent, Germany's DAX index declined 0.61 percent, and France's CAC-40 lost 0.46 percent.
Last Updated: Tue, 03 Jul 2007 00:20:00
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