By Kate Gibson, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks bounced back Tuesday to
recoup much of the prior day's losses as investors found confidence
in Dell Inc.'s deal to go private in the biggest leveraged buyout
in years.
After briefly retrieving its position above the 14,000 level,
the Dow Jones Industrial Average (DJI) ended up 99.22 points, or
0.7%, to 13,979.30. The blue-chip average had lost nearly 130
points on Monday, the steepest drop of the year.
The S&P 500 Index (SPX) climbed 15.58 points, or 1%, to
1,511.29, with technology performing best among its 10 industry
groups, all of which ended higher.
The Nasdaq Composite Index (RIXF) advanced 40.41 points, or
1.3%, to 3,171.58.
For every stock that fell, roughly three advanced on the New
York Stock Exchange, where 701 million shares traded hands.
Composite volume surpassed 3.5 billion.
Dell Inc.'s (DELL) shares rose 1.1% after the personal-computer
maker agreed to be taken private in a deal valued at $24.4 billion.
The buyout price represents a 25% premium over Dell's closing price
on Jan. 11 before rumors of the deal surfaced.
Share buybacks and leveraged buyouts are likely to increase as
private-equity firms and corporations take advantage of the current
phenomenon that has the S&P 500's cash-flow yield more generous
than the yield on junk-rated bonds, predicted Jack Ablin, chief
investment officer at BMO Private Bank.
"Dell's desire to explore the possibility of taking the company
private last December reignited the trend," he said. He noted the
widening gap between the valuation differential between stocks and
bonds.
Before the Dell disclosure, the company's A-rated
intermediate-term bonds were trading at a 2.7% yield while its
cash-flow yield -- free cash flow divided by the share price -- was
nearly 17%, "making an easy argument for the firm to consider
buying some of its own shares," noted Ablin.
Also on the deal front, shares of Virgin Media Inc. (NTLID)
jumped 18% after the U.K. pay-television provider said it was in
talks with Liberty Global Inc. (LBTYA) about "a possible
transaction."
Momentum
The S&P 500 has risen 6% this year as politicians managed to
reach a budget agreement and as American corporations reported
better-than-anticipated fourth-quarter results. .
That rise, as well as a recent influx of retail investors into
stock mutual funds, has fostered a debate about whether the rally
is getting long in the tooth -- or alternatively, laying the
groundwork for a longer rise. In the bull camp, Jim O'Neill, the
soon-to-retire chairman of Goldman Sachs Asset Management, told
CNBC Tuesday that the momentum for U.S. equities for the remainder
of the year is a favorable one.
Earnings reports were the trigger for some of the day's biggest
stock moves.
Computer Sciences Corp. (CSC) jumped 9.2%, best on the S&P
500, after hiking its earnings outlook for the year. Yum Brands
Inc. (YUM) fell 2.9% after the owner of the Pizza Hut chain reduced
its profit outlook.
Archer-Daniels-Midland Co. (ADM) gained 3.3% after reporting
quarterly profit that beat forecasts. Kellogg Co. (K) shares rose
0.7% after the cereal maker reported less of a quarterly loss.
Of the 56% of companies that have reported fourth-quarter
earnings, nearly 69% have beaten estimates, according to Thomson
Reuters. Nearly 66% of those 278 companies reported revenue that
topped forecasts.
Stocks found some support in the day's economic data.
The Institute for Supply Management's services index fell to
55.2% in January from 55.7% in December. Any number above 50%
signals expansion.
When considered in combination with the better-than-expected
manufacturing report last week, "one can't help but feel that the
private-sector economy is holding up fairly well despite the public
sector's best efforts to cause turbulence," Dan Greenhaus, chief
global strategist at BTIG LLC, wrote in emailed comments.
U.S. home prices climbed 0.4% in December to bring the
year-on-year gain to 8.3%, the best advance since May 2006,
CoreLogic reported Tuesday.
Stocks fell hard Monday on worries about Europe's handling of
its debt crisis, with Spain's Mariano Rajoy facing calls from
opposition leaders that he step down.
"Today's rally is just as inexplicable as yesterday's selloff,"
Elliot Spar, market strategist at Stifel, Nicolaus & Co.,
emailed in afternoon comments.
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