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Good Quarter for Stocks—So Far

The start of the third quarter has been good for stocks—the S&P 500 is up 4.6 percent so far in July. Unfortunately, with the exception of July 1, volume has been very light—Friday was the lightest volume day of the year at the NYSE.

One positive for stocks: changing calculus on taxes. Now thatCongress is returning from recess, odds are being taken on whether the Democrats will agree to extend the Bush tax cuts. Two months ago, the majority of traders felt it was a foregone conclusion that the cuts would not be extended and that the top bracket would go from 35 percent to 39.5 percent.

But the weak economy—and the prospects that Democrats might lose the House of Representatives this fall—has changed the calculus. Traders are now hopeful that the cuts will either be extended, or that the top rate will be less than 39.5 percent.

And taxes on dividends? Even Geithner supports moving it from 15 to 20 percent, far less onerous than was being considered.

Elsewhere:

1) BP up 3 percent, over $35 for the first time since early June. It declined to comment on a Times report that ExxonMobil was considering a takeover bid. They are also reportedly in talks to sell up to 12 billion in assets, possibly including a substantial stake in Alaska's Prudhoe Bay oil field to Apache .

2) Hewitt Associates soars 33 percent after insurance broker Aon (AON) acquired the human resource service firm for $4.9 billion in cash and stock. The deal gives Hewitt shareholders $50 per share, a 41 percent premium from Friday's close.

After the deal's expected close in November, the Hewitt business will be integrated into Aon's current consulting operations.

3) Shaw Group reported better-than-expected Q3 earnings ($0.57 vs. $0.54 consensus) as revenues were inline with estimates.

Looking ahead, the construction and engineering firm guides earnings between $2.10 and $2.20, mostly below consensus of $2.20 on revenues of $7.0 billion (basically inline with the consensus estimate).

4) Weyerhauser jumps 8 percent after the timber and forest product provider declared a special $5.6 billion dividend ahead of its conversion to become a real estate investment trust.

5) UBS downgrades Aetna to neutral on its belief that costs related to healthcare reform will hinder margin expansion. The analyst also cuts its price target to $30 from $38.

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