Pharma deal; housing data spur early climb
Small-cap stocks pushed higher after a flat open, underpinned by bullish enthusiasm stoked by news that Pfizer Inc. (NYSE:PFE) would pay $68 billion for Wyeth (NYSE:PFE) in one of the biggest pharma M&A deals in years. In addition, economic data on home sales and leading indicators topped expectations, fueling the rise in equities. At 10:06 a.m. ET, the Russell 2000 (NYSE:IWM) was up 11.42, or 2.57%, at 455.78.
Existing home sales came in at an annual rate of 4.74 million units, well above the forecast of 4.40 million. Sales were up 6.5%, compared with a slide of 9.4% in November. Lower mortgage rates spurred refinance and purchase activity, and it will be interesting to see if housing data continues to surprise, or if today’s news was a “flier.” Meanwhile, leading indicators came in at plus 0.3%, also much better than the projection for a slide of 0.3%. This marked the first rise in leading indicators since June 2008.
The news was Dow-30-heavy this morning, with five of 30 Dow stocks making big news. In addition to the Pfizer takeover, arguably the biggest wave came from Caterpillar Inc. (NYSE:CAT) as the maker of heavy equipment said that 2009 profits would shrink relative to 2008 and that the firm would slash some 20,000 jobs. Meanwhile, McDonald’s Corp. (NYSE:MCD) topped the profit forecast. Interestingly, even though the market was eager to embrace the Pfizer news, the potential breakup of the Dow Chemical/Rohm & Haas merger didn’t seem to phase investors.
Even though much of the early news today seemed soft (outside of the econ data), the market was holding together reasonably well. There was some thought that stocks were a little oversold following last week’s slide to the lowest weekly close since the November bear market lows were forged.
Looking at the chart picture, the market remains in a sideways consolidation range and bounce several times last week off dips toward 431 to 435. For today, important support will be at 435, then at 431; a breach of the latter could open the floodgate for a much deeper pullback. On the upside, resistance comes in at 461, then at 466.
Crude oil prices were lower into the stock market open, but rallied back into positive ground in line with an early rise in equities as energy prices remain very sensitive to moves in the stock market. Crude prices pushed about $1 a barrel higher, which should underpin energy shares if the firm tone persists. The U.S. dollar also started to slide against the euro, which is supportive to commodity markets in general.
Individual small caps on the move today included RXi Pharmaceuticals Corp. (Nasdaq:RXII), which jumped 31% on news that the firm will enter a research collaboration with the University of Massachusetts Medical School. WellCare Health Plans Inc. (NYSE:WCG) rallied about 19% as the firm updated its 2008 forecast and said it would pay in fall outstanding term loan balances. AngioDynamics Inc. (Nasdaq:ANGO) was up 12%, gapping higher and pushing toward multi-month highs. On the downside, AMN Healthcare Services Inc. (NYSE:AHS) was down 13% sinking to 52-week lows.
