After ending the previous session sharply higher, stocks showed a lack of direction over the course of the trading day on Monday. The major averages bounced back and forth across the unchanged line before ending the session mixed.
While the major averages all moved to the upside going into the close, the Dow remained stuck in the red. The Dow edged down 8.70 points or 0.1 percent to 12,871.39, while the Nasdaq rose 16.18 points or 0.6 percent to 2,951.23 and the S&P 500 crept up 3.35 points or 0.3 percent to 1,365.51.
The choppy trading on Wall Street came as traders expressed uncertainty about the near-term outlook for the markets following last Friday's rally. Light trading activity ahead of the Independence Day holiday also contributed to the lackluster performance.
A disappointing manufacturing report from the Institute for Supply Management generated some negative sentiment in morning trading, but selling pressure waned amid optimism about the possibility of further stimulus from the Federal Reserve.
The ISM said its purchasing managers index dropped to 49.7 in June from 53.5 in May, with a reading below 50 indicating a contraction in manufacturing activity. Economists had expected the index to show a much more modest decrease to a reading of 52.0.
With the bigger than expected decrease, the index pointed to a contraction for the first time since July of 2009, when it showed a reading of 49.2.
Commenting on the data, Rob Carnell, chief international economist at ING, said, "It will be hard for the Federal Reserve to remain on the sidelines in response to what appears to be a marked softening in the U.S. story."
"But Twist has reached its natural end-point, with the latest extension, and QE3 is unlikely to be that effective," he added. "Perhaps the Fed will take a leaf out of the [Bank of England's] book, and look at credit easing more directly as a way of giving the economy an extra push."
Meanwhile, a separate report released by the Commerce Department showed a bigger than expected increase in U.S. construction spending in the month of May. A notable increase in spending on private construction more than offset a drop in spending on public construction.
Among individual stocks, shares of Amylin Pharmaceuticals (AMLN) rose by 8.9 percent after the biopharmaceutical company agreed to be acquired by Bristol-Myers Squibb (BMY) for $31 per share in cash. The offer price represents a 10 percent premium to Amylin's closing price on Friday.
BrightPoint (CELL) also posted a standout gain after agreeing to be acquired by Ingram Micro (IM) for $9 per share in cash or $840 million in total. Shares of BrightPoint jumped 66.5 percent.
Meanwhile, computer giant Dell (DELL) ended the day in the red after announcing an agreement to acquire Quest Software (QSFT) for $28 per share in cash. The agreement values Quest at $2.4 billion.
In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Monday, with Australia's All Ordinaries Index advancing by 0.9 percent. However, Japan's Nikkei 225 Index bucked the uptrend and closed just below the unchanged line.
The major European markets also showed strong moves to the upside on the day. The German DAX Index rose 1.2 percent, the U.K.'s FTSE 100 Index climbed 1.3 percent, and the French CAC 40 Index jumped 1.4 percent.
In the bond market, treasuries moved sharply higher on the heels of the disappointing manufacturing data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 7.9 basis points to 1.58 percent.
Most of the major sectors ended the day showing only modest moves, contributing to the lackluster performance by the broader markets.
Nonetheless, considerable strength was visible among biotechnology stocks, as reflected by the 2.7 percent gain posted by the NYSE Arca Biotechnology Index. With the gain, the index ended the session at its best closing level in well over a month.
While Amylin helped to lead the biotech sector higher, Incyte (INCY) and Myriad Genetics (MYGN) also posted notable gains.
Tobacco stocks also saw significant strength, driving the NYSE Arca Tobacco Index up by 2.5 percent.
The gain extended a recent upward move by the index, which ended the session at a record high.
Telecom, airline, and electronic storage stocks also posted notable gains, while substantial weakness was visible among health insurance stocks. The Morgan Stanley Healthcare Payor Index fell by 1.6 percent to a six-month closing low.
Trading on Tuesday could be impacted by the release of a report on factory orders, although trading activity is likely to remain relatively subdued in an abbreviated session.
by RTT Staff Writer
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