Benchmarks had a volatile run through the session, rebounding from a mid-day slump to settle in the green powered by new deals and upbeat economic reports. New deals between Medtronic and Covidien, Williams Companies and Access Midstream Partners, Level 3 Communications and TW Telecom, and SanDisk and Fusion-io boosted sentiment. Encouraging data on manufacturing activity in the New York region, industrial production and U.S. homebuilders' confidence also added to the rally. However, Iraq's political tensions and its effect on crude oil prices kept gains in check.
For a look at the issues currently facing the markets, make sure to read today's Ahead of Wall Street article
The Dow Jones Industrial Average (DJI) gained a meager 0.03% to close at 16,781.01. The Standard & Poor 500 (S&P 500) added roughly 0.1% to finish at 1,937.78. The tech-laded Nasdaq Composite Index ended Monday's session at 4,321.11, up 0.2%. The fear-gauge CBOE Volatile Index (VIX) went up 3.9% to settle at 12.65. Total volume on the New York Stock Exchange was 2.9 billion. Advancers edged past the declining stocks on the NYSE. For 49% stocks that advanced, 48% declined.
Medical device maker Medtronic, Inc. (NYSE: MDT ) announced its plans on Sunday to acquire Dublin-based Covidien plc (NYSE: COV ) for $42.9 billion. Medtronic is willing to pay $93.22 for each Covidien share. This is a 50% premium on Medtronic's closing price of $60.70 per share on June 13, the last trading day prior to the announcement. Shares of Medtronic slipped 1.1%. In contrast, Covidien's shares surged 20.5%, making it the biggest percentage gainer among the S&P 500 components.
Williams Companies, Inc. (NYSE: WMB ) was the S&P 500's second-biggest percentage gainer. Shares of the company soared 18.7% after the pipeline operator agreed to acquire Access Midstream Partners, L.P. (NYSE: ACMP ) for $5.99 billion. Shares of Access Midstream Partners also increased 1.9%.
Separately, network operator Level 3 Communications, Inc.'s (NYSE: LVLT ) shares dropped 4.1% after the company agreed to buy TW Telecom Inc. (NASDAQ: TWTC ) for $7.3 billion. The deal values TW Telecom's total equity at $5.7 billion and debt at $1.6 billion. Level 3 Communications agreed to pay $40.86 a share in cash and stock. Shares of TW Telecom surged 7.3%.
SanDisk Corp. (NASDAQ: SNDK ) agreed to buy Fusion-io, Inc. (NYSE: FIO ) for an all cash deal of about $1.1 billion. SanDisk will pay the shareholders of Fusion-io $11.25 per share in cash, a 21% premium on Fusion-io's closing price on Friday. Shares of SanDisk and Fusion-io increased 3.6% and 22.4%, respectively.
Economic data was also encouraging on Monday. The June 2014 Empire State Manufacturing Survey released by the Federal Reserve Bank of New York indicated that manufacturing conditions improved significantly for New York manufacturers. The Empire State Index rose to 19.28 in June from 19.01 in May. This rise was more than the consensus estimate of a rise to 13.95. The report shows that the new orders index rose eight points to 18.4, its highest level in four years. The shipments index was at 14.2.
The Board of Governors of the Federal Reserve System reported an increase in industrial production. The report stated industrial production rose 0.6% in May after it slipped 0.3% in April. This rise in industrial production in May was more than the consensus expectation of a rise by 0.5%. Separately, capacity utilization rose to 79.1%, in contrast to the consensus estimate projecting the figure would remain flat at 78.9%.
The National Association of Home Builders/Wells Fargo said the U.S. homebuilders' confidence moved up in June. The sentiment gauge went up to 49 in June from May's reading of 45. However, the index remained below the key level of 50, since February.
The SPDR S&P Homebuilders (XHB) gained 0.9%, the highest among the S&P 500 sectors. Key housing stocks from the sector such as DR Horton Inc. (NYSE: DHI ), Lennar Corp. (NYSE: LEN ), Toll Brothers Inc. (NYSE: TOL ), Beazer Homes USA Inc. (NYSE: BZH ) and PulteGroup, Inc. (NYSE: PHM ) increased 1.2%, 1.5%, 1.1%, 1.0% and 0.7%, respectively.
The Utilities Select Sector SPDR (XLU) advanced 0.7%, the second highest among the S&P 500 sectors. Key stocks from the sector such as Duke Energy Corporation (NYSE: DUK ), NextEra Energy, Inc. (NYSE: NEE ), Southern Company (NYSE: SO ), Exelon Corporation (NYSE: EXC ) and American Electric Power Co., Inc. (NYSE: AEP ) increased 0.4%, 0.4%, 0.4%, 1.1% and 0.6%, respectively. Overall, 7 out of 10 sectors of the S&P 500 ended in the green.
Meanwhile, investors remained concerned about oil supply disruption due to the ongoing Iraqi sectarian clash. Militants in Iraq published images of hundreds of executed Shiite Iraqi soldiers. The militants claimed to have executed the soldiers. Last week, Kurdish forces, the ethnic militant group in Iraq, seized major cities. They also took control over the oil hub in Kirkuk after government's troops failed to secure the area. Prime Minister of Iraq Nouri al-Maliki stated that this is the greatest threat to his government since taking over power.
On Monday, U.S. Secretary of State John Kerry responded to these developments by saying that United States is considering air strikes to assist the Iraqi government to fend off the insurgency. He added that the U.S. is looking forward to discuss the unrest in Iraq with neighboring Iran. On Friday, President Barack Obama had said that the US government is helping Iraq's government with logistical support. Obama said: "We'll be monitoring the situation very carefully over the next couple of days… So far we have not seen major disruptions in oil supplies".
Oil prices were little changed on Monday. U.S July crude futures dropped $0.01 to settle at $106.90 a barrel. Brent crude oil futures also slipped $0.19 to settle at $113.22 a barrel. However, Brent crude for August delivery rose by 48% to settle at $112.94 a barrel after reaching an intraday high of $113.28.