Stocks fell on Monday as investors recouped from last week's selloff to focus on an upbeat retail sales report, and news that firms were beginning to spend cash on acquisitions.
TheDow Jones Industrial Average was up more than 60 points, led by Caterpillar , JPMorgan , and Travelers . Meanwhile, Disney and Intel fell.
The S&P 500 and tech-heavy Nasdaq also gained. The CBOE Volatility Index, widely considered the best gauge of fear in the market, sank to just above 19.
Most key S&P sectors rose, led by financials, industrials and telecom.Materials technology fell.
Last week the major indexes each lost more than 2 percentas news about the possibility of rising interest rates in China, coupled with troubles in periphery European countries and lack of progress at the G-20 meeting of world leaders gave investors reason to sell stocks that had appreciated 15 percent or more since July.
With some of the steam taken out of the market, traders were able to reassess and look at fundamentals on Monday, and Caterpillar's news that it was buying mining equipment maker Bucyrus in an $8.6 billion dealwas just the thing.
"Caterpillar is a cyclical company," said Kevin Kruszenski, head of equity trading at Keybanc Capital Markets in Cleveland. "The fact somebody is buying something right now, suggests the trend may have some further legs."
Art Hogan, chief market analyst at Jefferies & Co., said the news was helping to lift the market on Monday: "That’s exciting to the market, it adds some buzz," he said.
Another big factor was that for a fifth day, the dollar "decoupled," from stocks, Hogan said. Since August, the market has moved inversely to the dollar just about every day. But investors began to realize the dollar had to go down versus something, and last week, traders saw the Euro going down because of its own troubles and concluded, "the dollar doesn’ t have to go down versus the Euro every day," he said.
Another positive factor: retail sales rose in October, a month that's typically slow. That's a sign of consumer health that bodes well for the holiday season, Hogan added.
After focusing on the dollar, the Federal Reserve's plans for monetary policy and the mid-term elections for months, "you have a market that might just be getting back to fundamentals," he said.
October's retail sales rose 1.2 percentin October, their biggest gain in seven months, up from a 0.7 percent gain in September. Excluding autos, retail sales rose 0.4 percent, versus 0.5 percent in September.
Retailers got a boost following the upbeat sales report. Saks , Nordstrom , and JCPenney were all higher.
Specialty retailers were mixed, however. Aeropostale and JCrew and Delia's rose, while Zumiezand Gap fell.
Nordstrom and Urban Outfitters were scheduled to release earnings results after the close.
In addition, major retailers including Wal-Mart , Home Depot and Target are slated to report earnings this week.
Lowe's rose after the home-improvement retailer posted a 19 percent increase in quarterly profitas the firm kept a rein on costs while shoppers remained guarded in their spending.
Sales of rival industrial equipment makers also rose in the wake of the Caterpillar-Bucyrus deal, including Terex , which has a small stake in Bucyrus. JoyGlobal , another mining equipment maker, skyrocketed as well. Kruszenski at Keybanc said his firm viewed Joy Global as well as Bucyrus as potential takeover targets.
Also doing well is Oshkosh , which makes other specialty vehicles including fire and emergency vehicles, and Titan Wheel , a small-cap company that makes tires for mining equipment, Kruszenski noted.
Illinois Toolworks , meanwhile, also rose after reporting a 13 percent hike in sales for its latest fiscal quarter through Oct. 31. Sales excluding acquisitions and currency fluctuations rose 10 percent.
Also on the M&A front, EMC said it will pay $2.25 billion to acquiredata company Isilon in the biggest deal in the industry since Hewlett-Packard acquired 3Par earlier this year. EMC shares edged higher while Isilon rose 29 percent.
A handful of tech stocks were under pressure, however. A report by Citigroup said the tech sector may be due for correction after rising about 21 percent since August, thanks largely to the semiconductor and semi equipment stocks.
Chipmakers including Juniper Networks and Micron Technology slid. And National Semiconductor slipped after Citigroup cut its rating on the semiconductor firm to "hold" from "buy."
While fundamentals at these companies are good, they don't support higher stock prices, according to Citi. "In essence, the investment community has rushed back into tech names over the last couple of months as the emphasis has been on economic and business direction rather than focusing in on stock price performance drivers, which is a common but often repeated investor error," Citi said.
Akamai fell almost 7 percent after a ratings cut by analysts at Oppenheimer to "perform" from "outperform.
Meanwhile, Apple shares were higher ahead of the iPod maker's major announcement Tuesdayabout iTunes. According to rumors, Apple is to release a Web-based version of the dominant digital music store.
In company news, BHP Billiton said it was dropping its $39 billion bid for fertilizer company Potash , and instead will restart its buyback program and return $4.2 billion to shareholders.
Massey Energy shares were higher on speculation in the Wall Street Journal that steel company Arcelor Mittal was also interested in acquiring the coal mining company.
Johnson & Johnson rose after news that a blood thinner it is developing with Bayer is a step closer to approval by the FDA.
Financials including Bank of America , Capital One and Discover Financial rose after major credit-card lenders reported lower delinquency rates, as fewer Americans fell behind on payments, in another sign that the economic recovery is gaining momentum.
Meanwhile, Goldman Sachs will not be able to repay $5 billion to investor Warren Buffett yet as the Federal Reserve hammers out guidelines for dividend increases, according to a report in the Wall Street Journal.
In the transportation sector, several railroads got a nod from R.W. Baird. Baird raised Union Pacific to "outperform" from "neutral," and boosted its price target to $120 from $100, citing greater conviction in near-term rail volumes. The brokerage raised its price target for Norfolk Southern to $72 a share from $70, and for CSX to $80 a share from $70.
Colgate-Palmolive advanced after news the consumer products company was upgraded to "buy" from "hold," by Citigroup, saying the company was on the "road to recovery." The brokerage raised the company's price target to $85 a share from $77.
Monsanto , meanwhile, slipped after Deutsche Bank downgraded the stock to "hold" from "buy."
The market for initial public offerings is awaiting the launch of General Motors return to the public markets. The deal is expected to price Wednesday evening and begin trading on Thursday. The price of the IPO is expected to rise beyond the initial pricing of $26 and $29 a share, as underwriters gauge hot demand for the shares, according to people familiar with the matter.
The dollarrose to a six-week highagainst major currencies, buoyed by worries about euro zone debt woesand as rising U.S. bond yieldslifted the appeal of dollar-denominated assets. Oil prices rebounded above $85 a barrelafter falling sharply from a more than two-year high last week.
In other economic news, business inventories rose 0.9 in September, from the same level a month earlier. The rise was in line with expectations, and was the highest level in two years.
The November Empire Manufacturing Index fell to 11.1 in November from 15.7 in October, far more than expected. Economists surveyed by Reuters expected the index to fall to 14.
In other news, California is set to begin a bond auction and is looking to raise some $14 billion in debt.
Over the weekend, former Fed Chairman Alan Greenspan said the U.S. must reduce its debt mountain or risk a bond market crisis.
Coming Up This Week:
MONDAY: 13-F filings due; after-the-bell earnings from Nordstrom and Urban Outfitters.
TUESDAY: PPI, Treasury international capital, industrial production, housing market index, Microsoft shareholders meeting, Atlanta Fed Pres Lockhart speaks; Earnings from Home Depot, Wal-Mart, TJX and Saks.
WEDNESDAY: Weekly mortgage applications, CPI, housing starts, oil inventories, St. Louis Fed Pres Bullard speaks, GM IPO pricing, LA auto show kicks off, Qualcomm analyst meeting; Earnings from Target and Applied Materials.
THURSDAY: Weekly jobless claims, leading indicators, Philadelphia Fed survey, Cisco shareholder meeting; Earnings from Dell and Gap.
FRIDAY: Bernanke speaks at ECB Central Banking Conference, Harry Potter movie premieres.
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