New York – Stocks wilted today as comments from former Federal Reserve Chairman Alan Greenspan and worries about upcoming economic data deflated a rally fed by takeover activity.
Stocks initially rose, lifting the Dow Jones industrials briefly above 13,600 for the first time, after the market got a fresh load of deal-related news that included a possible bidding battle over aluminum producer Alcan Inc.
But the excitement waned after a media report that Greenspan expressed concern that China’s stock market – which has recently been hitting record highs – could eventually see a sharp decline.
Wall Street’s mood also dampened when energy prices failed to ease despite a rebound in U.S. crude and gasoline inventories last week.
And with key reports on durable goods and new-home sales due for release Thursday and the long Memorial Day weekend looming, investors adopted a defensive stance.
Strong merger and acquisition activity has for weeks been the primary force lifting the Dow, which crossed over the 13,000 milestone less than a month ago. So after some cautionary comments from Greenspan, analysts were not surprised to see investors take a breather.
“He still carries a lot of clout,” said Steven DeSanctis, a small-cap strategist with Prudential Equity Group, noting that U.S. investors also are very focused on the Chinese economy. “You get a data point like that, and people start to take profits, get a little nervous.”
The Dow fell 14.30, or 0.11 percent, to 13,525.65, after climbing to an intraday trading record of 13,609.76.
Broader stock indicators also were lower. The Standard & Poor’s 500 index fell 1.84, or 0.12 percent, to 1,522.28, still unable to finish above its record close of 1,527.46 set in March 2000.
The Nasdaq composite index slipped 10.97, or 0.42 percent, to 2,577.05, after briefly trading above the 2,600 mark for the first time in more than six years.
Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.86 percent from 4.83 percent late Tuesday.
Giving stocks an early lift was news that Alcoa’s $27.6 billion hostile bid for rival Alcan was rebuffed, and a Canadian media report that Australian mining giant BHP Billiton Ltd. might make its own offer.
The report followed announcements late Tuesday that Morgan Stanley Real Estate will acquire real-estate investment trust Crescent Real Estate Equities Co. for $2.34 billion and that Payless ShoeSource will buy competing shoe-store chain Stride Rite for about $800 million.
Adding to the takeover flurry, the Bancroft family, which controls Dow Jones & Co., planned to meet privately to discuss a $5 billion bid by Rupert Murdoch’s News Corp., according to The Wall Street Journal, which is owned by Dow Jones. Dow Jones rose $1.28, or 2.5 percent, to $52.74.
The stock market has been surging on recent deals, as they signal there is ample cash in the marketplace and that corporate executives are confident about the economy.
About $2.3 trillion worth of deals have been announced so far this year, according to financial data provider Dealogic, and the tally is on track to beat last year’s record $4 trillion.
Although most market participants are optimistic about the stock market in the long-term, many are bracing for a short-term dip once the takeover euphoria wears off.
“The market’s been held up by all of this M&A activity, not by fundamentals,” said Ed Peters, chief investment officer at PanAgora Asset Management Inc.
Corporate profits have been slowing but remain fairly strong. A new batch of strong earnings Wednesday, particularly from retailers, reassured investors.
Target, the second-largest U.S. discount chain, rose 56 cents to $58.60 after reporting that its first-quarter profit beat estimates due to strong sales of spring merchandise.
But many investors worry that high energy prices could eat into discretionary spending.
Crude futures rose 26 cents to $65.77 a barrel on the New York Mercantile Exchange, after a 1.5 million barrel gain in gasoline stockpiles last week failed to convince traders that supplies will be sufficient ahead of the summer driving season.
