Stocks surged with a widespread bounce on Monday thanks to a rash of merger and acquisition news. A few high-profile upgrades were contributing to the bullish tone. The market strength could also be part of some last minute end of quarter window dressing by fund managers. Commodities are mostly higher but the dollar is bouncing from its intraday lows, which is undermining the rebound for gold and oil.
Foreign markets were very mixed. Asian markets were down sharply across the board. A rise in the yen against the dollar weighed on Japanese exporters and the NIKKEI index lost 2.5%. The Hong Kong Hang Seng gave up just over 2%. Traders appeared to be locking in gains ahead of a long holiday for the Chinese market with the Shanghai index down 2.65%. October 1st begins an eight-day "National Day" holiday to celebrate the 60th anniversary of the founding of the People's Republic of China.
In contrast the European markets were up big as investors reacted to the German elections. Angela Merkel, the German Chancellor, was re-elected after promising tax cuts and deregulation of the labor markets. The German DAX gained 2.78%. The French CAC-40 rose 2.3%. The English FTSE rallied 1.7%.
M&A activity sparked the rally this morning. Traditionally M&A news is seen as bullish for the markets because it means businesses are feeling more confident about the future and the economy and less concerned about hoarding cash. Abbott Labs (ABT) announced a 4.8 billion euro ($7 billion) deal to buy the pharmaceutical unit of Solvay, a Belgian chemical maker. The move is seen as a big positive for ABT, which will raise the company's revenues and grow its exposure to emerging markets. Shares of ABT gapped open higher and they're trading up about 3% on the news.
Xerox Corp. (XRX) announced a $6.4 billion deal to buy Affiliated Computer Services (ACS). The move expands XRX's presence into back-office and services market. ACS shareholders will receive $18.60 in cash and 4.935 shares of XRX for every share of ACS. Meanwhile Dow-component Johnson & Johnson (JNJ) spent $444 million for an 18% stake in Crucell NV, a Dutch biotech firm trying to develop a universal flu vaccine. Shares of JNJ are up 1.1% and are close to breaking out from a multi-week consolidation.
Adding to the bullish tone today were a few upgrades. Cisco Systems (CSCO) and Applied Materials (AMAT) were upgraded to an "overweight" and a "buy", respectively. Meanwhile Apple Inc. (AAPL) had its price target raised to $210 this morning. The company announced that it has had more than 2 billion applications for its iPhone downloaded from the iTunes store. According to AAPL there are more than 85,000 applications available for the 50+ million iPhone users. Furthermore AAPL said it had signed a deal with separate foreign telecom companies to bring the iPhone to England and China in the fourth quarter. Shares of AAPL are up 1.9% to $185.92.
The market's bounce today is very widespread. I do not see any sector indices in negative territory. The best performers are insurance, healthcare, cyclicals, oil services, biotech, and technology. Currently the S&P 500 index is up more than 18 points at 1,062. The NASDAQ composite is up more than 43 points at 2,134. The Dow Industrials are up almost 139 points at 9,804. The small cap Russell 2000 index is up almost 15 points at 613.85.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
Scanning the OptionInvestor.com play list for movement I see ATI up 3% today back above $35.00 again. BBY is up 1.4% and still holding above its trendline of support. CNX is up 2.4%. Oil service stock DO is up 1.8% as it continues to bounce from $90. NYX is up 2.4% as it bounces from a multi-day decline.