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Stocks rise to records on small-cap rally, deals

Bloomberg News

June 09. 2014 8:15PM

NEW YORK — Stocks rose, with benchmark indexes extending records, as small-cap shares rallied and Family Dollar Stores advanced with Analog Devices amid deals activity.

Family Dollar jumped 13 percent as a filing showed Carl Icahn has amassed a 9.4 percent stake. Analog Devices jumped 5 percent after agreeing to buy a chipmaker for about $2 billion.

Idenix Pharmaceuticals more than tripled after Merck agreed to buy the drugmaker for $3.9 billion. Tyson Foods fell 6.5 percent after the company said it made a binding offer for Hillshire Brands. Apple traded at $93.70, reflecting a seven-for-one stock split.

The Standard & Poor’s 500 Index added 0.1 percent to 1,951.27 at 4 p.m. in New York, capping its seventh record close in the past eight sessions. The Dow Jones Industrial Average gained 18.82 points, or 0.1 percent, to a record 16,943.10. The Russell 2000 Index of small companies climbed 0.9 percent for a fourth day of gains.

About 5.3 billion shares changed hands on U.S. exchanges on Monday, 15 percent below the three-month average.

“There’s a fair amount of skepticism over if we are at peak valuations,” Michael Arone, the Boston-based chief investment strategist at State Street Global Advisors’ U.S. Intermediary Business, said. State Street oversees $2.4 trillion in assets. “My view is the Goldilocks economy is back — not too cold, not too hot, but just right. What we’re starting to see is companies starting to do capital expenditures and M&A to invest in their businesses.”

The S&P 500 advanced 1.3 percent to a record 1,949.44 last week as the European Central Bank lowered interest rates and a report showed that the U.S. economy created more jobs than expected. The index has continued to climb to records even as the U.S. economy contracted for wthe first time in three years during the first quarter.

Federal Reserve officials are watching the labor market as they move to complete their bond-purchase program late this year and start considering the timing of the first interest-rate increase since 2006. Central-bank stimulus has helped propel the S&P 500 higher by as much as 188 percent from its bear-market low in March 2009.

The ECB’s stimulus sent European bond yields to all-time lows and helped boost the region’s equities to near the highest in six years.

The U.S. stocks benchmark has rebounded 7.5 percent since a selloff in small-cap and Internet shares spread to the broader market, dragging the index to a two-month low in April. The measure trades at 16.5 times the projected earnings of its members, up from a multiple of 14.8 at the start of February.

The Russell 2000 has advanced 4.4 percent in the past four sessions to the highest since April 3. The gauge has rallied 7.5 percent from a February low and is now up 1 percent in 2014.

The Chicago Board Options Exchange Volatility Index climbed 3.9 percent to 11.15. The gauge, known as the VIX, fell 5.9 percent last week to 10.73, the lowest level since February 2007.

“Growth is slow, GDP is slow, we have rate cuts all around, and we’re banking that all-time highs are going to get better,” Keith Rosendahl, chief investment strategist at Venice, Fla.-based research firm Interactive Portfolio, said. “With the merger activity, I think people are trying to buy growth.”

Six of the 10 main S&P 500 groups advanced on Monday, with industrial shares adding 0.6 percent to pace gains. Utility stocks lost 0.7 percent.

Idenix Pharmaceuticals soared 229 percent to $23.79 after Merck said it has agreed to acquire the maker of experimental Hepatitis C drugs for $24.50 a share in cash, or about $3.85 billion. Merck, the second-biggest U.S. drugmaker, gained 0.2 percent to $57.94.

Gilead Science, the developer of Sovaldi, a competing hepatitis C treatment, fell 4.1 percent to $79.01.

Analog Devices rose 5 percent to $55.31. The semiconductor manufacturer agreed to acquire Hittite Microwave for about $2 billion. The purchase price of $78 a share is 29 percent more than Hittite’s closing price on Friday. Hittite rose 29 percent to $77.90.

Morgan Stanley added 0.1 percent to $31.98.

The bank agreed to sell its stake in oil-transportation company TransMontaigne to NGL Energy Partners for $200 million as part of the bank’s effort to reduce capital used by the commodities business. NGL added 2.2 percent to $42.86.

Apple shares climbed 1.6 percent to $93.70. The shares closed Friday at $645.57. Apple said on April 23 it was doing the split so shares would be available to a wider pool of investors.

Wynn Resorts fell 2.9 percent to $199.05. Wynn Macau Ltd., a resort owned by the Las Vegas-based company and traded on the Hong Kong Stock Exchange, was downgraded to hold from buy at Deutsche Bank by equity analyst Karen Tang.

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