Investors remained on the fence Monday despite another decline in crude oil prices and the unveiling of a handful of high-profile deals with a total value of more than $12 billion.
Equity markets went essentially sideways, on lower than normal trading volume.
In what traders sometimes call a “Merger Monday,” three big deals made headlines. Software maker Oracle agreed to buy rival Siebel Systems for $5.85 billion. Ebay, the online auction concern, said it will pay between $2.6 billion and $4.1 billion to acquire Skype Technologies, a provider of Internet telephone services. And banker Wachovia will buy used-auto lender Westcorp for $3.91 billion.
Corporate buyouts often spur bullishness on Wall Street, sending spirits and stock prices higher. And it can only be good news that oil prices are continuing to retreat from their levels of two weeks ago.
Why, then, are investors displaying such caution in the face of Monday’s positive news?
They’re waiting for the financial fallout from Hurricane Katrina to come into better focus, some suggest, and waiting to see whether the Federal Reserve will continue raising interest rates.
Or they may just be taking a break.
Monday’s news “followed a very good rise” in the market over the past two weeks, said Mark Toledo, of Evanston-based Total Portfolio Management, “and so it didn’t have the bullish effect it might have had.”
In addition, he said, investors continue to ponder a number of “economic crosscurrents,” such as the possibility that the U.S. economy’s growth next year may be lower than earlier forecast.
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“U.S. markets will remain focused on the aftermath of Katrina and the prospects for a Sept. 20 Fed rate hike,” echoed Kim Rupert, of Action Economics, in a Monday morning report on the market’s prospects.
Despite recent speculation that the Fed may pause its program of interest rate hikes to give the hurricane-damaged U.S. economy a breather, Rupert said there is mounting evidence that Katrina’s damage to the U.S. oil infrastructure, and the resulting shock to the economy, “may not be as bad as feared.” That makes it more likely the Fed will boost interest rates when it meets next week, he said.
Monday’s action: The price of Treasury securities slipped slightly Monday.
In New York, crude oil for October delivery dropped 74 cents to close at $63.34 a barrel. Oil prices, which traded briefly above $70 in the panicky period after Katrina struck, have now dropped in four of the last five trading sessions.
Lower oil prices helped send the airline sector higher, with shares of American Air parent AMR rising 9.6 percent. But the good news didn’t help Delta Airlines, which sank sharply amid growing speculation that it will file for bankruptcy protection this week.
The Dow Jones Industrials were almost unchanged, closing up 4.38 points at 10682.94. Decliners led gainers by a margin of 9 to 8.
The Standard & Poor’s 500 index was similarly static, declining less than one point to 1240.56.
The tech-heavy Nasdaq composite index also displayed minimal movement, despite a modest boost from two tech-sector mergers announced Monday. The Nasdaq gained 7.32 points to close at 2182.83.
The Russell 2000 index increased by 2.77 points to close at 680.82.
Trading was sluggish, with 1.43 billion shares trading hands on the NYSE.
Among the 30 Dow industrials, the prospect of lower fuel costs helped send FedEx shares up $1.29, to $81.05.
Siebel Systems shares jumped 12.7 percent, after it agreed to be acquired by Oracle. Shares of Westcorp rose only 23 cents, to $61.58, on news it is being acquired by Wachovia.
The market’s indecision was evident among local stocks:
– Building products maker USG Corp. disclosed that a favorable tax decision will bolster third-quarter earnings by $25 million; USG shares inched up 37 cents to $66.20.
– Shares of suburban telecom-equipment maker Tellabs rose 35 cents on heavier-than-normal trading, to end the day at $9.47.