Stocks Rally as Bear Stearns Tops $12
Stocks rallied into the new week after JPMorgan Chase raised its offer for Bear Stearns and a report on home sales came in better than expected.
The Dow Jones Industrial Average and S&P 500 index gained more than 3 percent last week. The Nasdaq rose more than 2 percent.
This morning's gains were enough to catapult the Nasdaq out of bear-market territory. The Nasdaq will need to finish above 2287.30 to clear the bear mark, which is defined as 20 percent below an index's recent high. While many analysts would agree that the market has been acting like a bear, the Nasdaq was the only major index technically in a bear market.
JPMorgan's increased its offer for Bear Stearns to about $10 a share from the previous $2 a share after outraged shareholders promised to fight the bid.
Under terms of the new deal, JPMorgan would bear the first $1 billion of losses from Bear Stearns assets, while the Federal Reserve would be responsible for the remaining $29 billion of the originally agreed-upon $30 billion.
Bear Stearns shares shot up more than 50 percent, trading above $12 a share. JPMorgan shares also advanced.
The news fueled gains across the financial sector Monday, with Citigroup logging the biggest gain on the Dow. The S&P 500 financial index up 2.5 percent and the XLF fund, which contains a variety of financial-services firms, up 2.7 percent.
"[E]ven at $10 a share it's an outstanding value," Michael Kastner, head of fixed-income at Sterling Stamos Captial Management, told Reuters. "The market feels a little better about it since JPMorgan has an inside view, and found [Bear Stearns] is not a total basket case."
In other banking news, Bank of Americais likely to set aside as much as $6.5 billion in the first quarter, to cover for possible losses, Richard Bove of Punk Ziegel said.
The housing sector received some much-needed good news: Existing-home sales rose by 2.9 percentto a 5.03 million annual rate in February, snapping a six-month losing streak, according to a report from the National Association of Realtors. Compared to a year earlier, however, sales were down 24 percent and the median home price dropped 8.2 percent -- the largest decline on record -- to $195,900.
Shares of homebuilders jumped on the news, with Toll Brothers , D.R. Horton and Hovnian Enterprises all up more than 5 percent.
“I think most of the economic numbers that we’ll get this week will point to the economy stabilizing,” Peter Cardillo, chief market economist at Avalon Partners, told “Worldwide Exchange.”
Shares of BlackRock advanced after the money manager announced a new venture with hedge fund Highfields Capital Management. The new company, called Private National Mortgage, or PennyMac, will help restructure mortgage loans to keep homeowners out of foreclosure. PennyMac will be run by Stanford Kurland, the former president and operating chief of Countrywide Financial.
In another move aimed at stabilizing the mortgage-finance market, regulators voted to allow the Federal Home Loan Bank system to increase their holdings in Fannie Mae and Freddie Mac securities by more than $100 billion.
Shares of CIT Group rebounded, after sliding 27 percent last week, after a report in the Wall Street Journal said the company is in talks with overseas banks to provide funding for its core-lending practice. Stifel Nicolaus raised its rating on the stock to "buy" from "hold," saying the company's recent actions will buy it time to "seek alternatives."
Commodities will be closely watched as crude oil and gold prices plunged last week due to profit-taking after oil topped $111 a barrel and gold surpassed $1,003 an ounce. In currencies, the dollar gained some ground against the euro, helped by the housing report, but fell against the yen .
Monsanto was the top gainer in the Nasdaq 100 after UBS upgraded the seed maker's stock to "buy" from "neutral," saying near-term downside is limited and a lot of the weakness due to crop shifts have already been priced into the stock. UBS also cited the company's strong pipeline.
Google jumped after the Internet-search giant filed a proposal to the FCC requesting that the "white space" between broadcast channels be used for mobile-broadband services. Less than two weeks ago, Bill Gates urged the FCC to free up that space for broadband services. Google and Microsoft are part of a coalition lobbying the FCC to use that space. Dell and H-P are also part of that group.
Shares of Tiffany rose after the high-end retailer beat earnings estimates, helped by increased sales overseas. U.S. same-store sales fell 1 percent, while international same-store sales jumped 6 percent. The jeweler said it remains "cautious" about its domestic outlook, predicting a slight decline in U.S. same-store sales this year, but expects strong growth outside the U.S.
Drugstore chain Walgreen posted higher-than-expected earnings, helped by cost-cutting measures and an extra day in the quarter due to leap year.
Sherwin-Williams shares slipped after the paint maker cut its earnings forecast, citing sluggish sales and high raw-materials costs.
WEDNESDAY:Durable goods; new-home sales; oil inventories; Oracle earnings
THURSDAY: GDP; jobless claims; Lennar earnings; Fed auction
FRIDAY: Personal income and spending; consumer sentiment; KB Home earnings
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