Stocks Rise for Fifth Time in Six Sessions Amid Acquisition Speculation

Strategic Insights -

Stocks surged on Tuesday as merger talks between pharmaceutical giants SmithKline Beecham Plc and American Home Products Corp. sparked speculation about potential acquisitions, while companies that reported better-than-expected earnings and recent mergers added to the market's gains. Drugmakers led the rally, with shares climbing to their biggest gain since October. Amidst the market's advance, financial stocks declined after J.P. Morgan & Co. and Merrill Lynch & Co. reported lower earnings from trading in Asia.

Key Takeaways:

  • The Dow Jones industrial average rose 119.57, or 1.5 percent, its biggest gain since December 30, while the Standard & Poor's 500 index rose 17.09, or 1.8 percent, to 978.60.
  • Six of the top 10 gainers in the S&P 500 were drug stocks, including Merck & Co., which led the rise with a 5 3/4% gain to 115 1/2.
  • Warner-Lambert Co. was identified as a possible acquisition target by Alfred Kugel, senior investment strategist at Stein Roe & Farnham Inc.
  • Companies created through recent mergers also gained, including Glaxo Wellcome Plc and Pharmacia & Upjohn Inc.
  • Financial stocks declined after J.P. Morgan & Co. and Merrill Lynch & Co. reported lower earnings from trading in Asia.
  • Continental Airlines Inc., Lucent Technologies Inc., and Reynolds Metals Co. rose after reporting better-than-expected earnings.
  • Hicks, Muse, Tate & Furst Inc. and Kohlberg Kravis Roberts & Co. agreed to buy Regal Cinemas Inc. and combine it with their existing theaters.

Statistics:

  • Dow Jones industrial average rose 119.57, or 1.5 percent, its largest gain since December 30.
  • Standard & Poor's 500 index rose 17.09, or 1.8 percent, to 978.60.
  • Nasdaq composite index jumped 27.26, or 1.7 percent, to 1590.14.
  • Six of the top 10 gainers in the S&P 500 were drug stocks.
  • AMEX Pharmaceuticals Index rose 28.16, or 5.1 percent, to 580.84.
  • Shares traded: 11.3 million in Regal Cinemas Inc.

Sources:

  • "Stocks Rise After Merger Talk" by The Associated Press.
  • The Wall Street Journal.