NEW YORK (AP) — Wall Street had a burst of optimism Monday, rising on news that drugmaker Pfizer will acquire rival Wyeth for $68 billion and on a surprise jump in sales of existing homes in December.
The Standard & Poor’s 500 and Nasdaq composite indexes rose more than 1 percent, while the Dow Jones industrial average rose more than 80 points.
Pfizer’s move offered investors reassurance that dealmaking could still take place in a difficult recession. And a report from the National Association of Realtors that sales of existing homes rose rather than fell in December stirred hopes that lower prices and falling interest rates are helping eat away at a glut of homes with “for sale” signs.
Investors also placed bets on beaten down financial stocks after Standard & Poor’s reaffirmed its credit ratings on General Electric Co., which has a large financial services business. The company last week posted disappointing fourth-quarter results that stirred fears it could see its ratings downgraded. That could have weakened the financial standing of those that hold the company’s debt.
However, mixed news from big companies weighed on some corners of the market. Downbeat comments from Caterpillar Inc. about the health of its business curbed the advance in the Dow industrials compared with broader indexes. Shares dropped 10 percent after Caterpillar reported its fourth-quarter earnings fell 32 percent and that it would lay off workers and cut executive pay. The maker of heavy equipment said it would offer buyouts to 25,000 employees in the U.S. after plunging commodity prices left the company “whipsawed” in the fourth quarter after a strong start to 2008.
Home Depot Inc. also announced big job cuts. The company said it would slash 7,000 jobs and close its smaller Expo chain as it struggles with the weak housing market.
A bit of bright news came from McDonald’s Corp., which posted better-than-expected profits but said revenue fell from a year earlier. Same-store sales, or sales at stores open at least a year, rose worldwide and in the U.S., where the company’s low-prices have been a draw for consumers worried about the economy.
“It’s almost like a teeter-totter right now,” said Alan Lancz, money manager at Alan B. Lancz & Associates. “Earnings season is always treacherous in this kind of global economic environment with all the uncertainty.”
Still, investors found comfort in the Wyeth acquisition. The combined company will have 17 products that each have more than $1 billion in annual sales. But beyond the implications for the drug industry, the $22.5 billion in financing put up by banks for the combination is another sign that the credit markets are slowly starting to improve after locking up following the mid-September bankruptcy of Lehman Brothers Holdings Inc. That failure left lenders hesitant to extend credit.
But not all deals are going through. Rohm and Haas Co. said Dow Chemical Co. scrapped its planned acquisition of the company, which was expected to close Tuesday.
In early afternoon trading, the Dow rose 83.79, or 1.04 percent, to 8,161.35.
Broader stock indicators also rose. The Standard & Poor’s 500 index rose 9.75, or 1.17 percent, to 841.70, and the Nasdaq composite index rose 18.42, or 1.25 percent, to 1,495.71.
The Russell 2000 index of smaller companies rose 8.16, or 1.84 percent, to 452.52.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 629.8 million shares.
Stocks are coming off a wild week of big ups and downs as companies’ financial results weighed on the market. All the major indexes finished last week with losses of more than 2 percent.
Of the companies in the Standard & Poor’s 500 index that have reported results in recent weeks, more than half have fallen short of analysts’ already reduced estimates. The poor showing has left investors nervous that the economy is in worse shape than feared. The numbers this week and company’s comments about the coming year will play a big part in shaping investor sentiment.
“Depending on how these earnings reports come out, that is going to set the tone going forward,” said Jon Biele, head of capital markets at Cowen & Co.
More results are due Monday from some of the biggest companies in a range of industries, including American Express Co. and Texas Instruments Inc.
Investors are also awaiting more details on President Barack Obama’s proposed stimulus package, which is working its way through Congress.
Senate committees are scheduled to take up the massive plan Tuesday and the full House is expected to vote on its version of the $825 billion package Wednesday. The plan could include big tax cuts and a massive public works program.
“Right now (the market) is in a holding pattern,” said Doug Roberts, chief investment strategist at Channel Capital Research. “They know things aren’t going to get any better soon, but want to see what this package is going to look like.”
Bank stocks gained after Britain’s Barclays PLC said it expects to turn in a profit for 2008 and that it doesn’t need a financial bailout to stay in business despite hefty write-downs. JPMorgan Chase & Co. rose $1.07, or 4.4 percent, to $25.35, while Bank of America Corp. advanced 35 cents, or 5.6 percent, to $6.59.
GE rose 37 cents, or 3.1 percent, to $12.40.
Wyeth rose 24 cents to $43.98, while Pfizer fell $1.65, or 9.5 percent, to $15.80. Pfizer said it will cut its dividend as part of the deal, though Wall Street often sells companies that announce acquisitions.
Home builders advanced following the better-than-expected housing data. KBR Inc. rose 13 cents to $15.19, and Toll Bros. Inc. rose 66 cents, or 3.7 percent, to $18.57.
Home Depot rose $1.18, or 5.4 percent, to $22.90, while McDonald’s rose 17 cents to $58.19.
A private research group also delivered good news Monday. The Conference Board said its monthly forecast of economic activity rose unexpectedly in December, largely because the rush of federal bailouts increased the money supply.
Bond prices fell Monday as stocks rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.67 percent from 2.62 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, was unchanged from late Friday at 0.09 percent.
The dollar fell against other major currencies, while gold prices rose.
Light, sweet crude slipped 1 penny to $46.46 on the New York Mercantile Exchange.