Wall Street roared back Monday, erasing its losses of last week after private-equity buyout deals involving companies such as Four Seasons Hotels Inc. and OSI Restaurant Partners Inc. revived investors’ belief that stocks still have room to run.
NEW YORK (AP) — Wall Street roared back Monday, erasing its losses of last week after private-equity buyout deals involving companies such as Four Seasons Hotels Inc. and OSI Restaurant Partners Inc. revived investors’ belief that stocks still have room to run. The Dow Jones industrials shot up 119 points.
The gains came a day ahead of the U.S. midterm elections, though the prospect of a power shift in Congress didn’t seem to unnerve investors.
“I think what you’re seeing on the tape is a reflection of the amount of money that has been raised in the private equity pools and that money is starting to go to work,” said John O’Donoghue, co-head of equities at Cowen & Co.
He also said investors are growing more confident that the elections will bring gridlock in Washington, a prospect Wall Street finds pleasing because it is seen as reducing risks to business interests.
According to preliminary calculations, the Dow rose 119.51, or 1.00 percent, to 12,105.55. The Dow moved back above the benchmark 12,000 level after closing below that Friday, when the blue chip average ended the week down 104.22 points. The Dow hadn’t closed below that level since it first finished above 12,000 for the first time on Oct. 19.
Broader stock indicators also advanced Monday. The Standard & Poor’s 500 index was up 15.48, or 1.13 percent, at 1,379.78, and the Nasdaq composite index advanced 35.16, or 1.51 percent, to 2,365.95.
Bonds rose, with the yield on the benchmark 10-year falling to 4.70 percent from 4.71 percent late Friday. The dollar was mixed against other major currencies, while gold prices fell.
Investors shrugged off a moderate rise in crude prices. Last week, an increase in oil prompted by concern about attacks on facilities in Nigeria helped push stocks lower. While those fears receded after violence proved to be less widespread than expected, an OPEC official said Monday that further production could be needed this year. Light, sweet crude was up 88 cents at $60.02 a barrel on the New York Mercantile Exchange.
Stocks rose sharply in October as investors sensed that corporate profits would hold up as the economy cooled. That notion lost backers last week, however, as negative economic data stirred fears the economy was cooling too quickly. Prior to Monday’s gain, the Dow closed lower for six straight sessions for the first time since June 2005.
Investors showed little reaction to comments from Chicago Federal Reserve President Michael H. Moskow about inflation, a normally sensitive subject for Wall Street. Moskow was quoted in prepared remarks as saying that the risk of inflation remaining too high outweighs the risk that economic growth will slow too much.
While Moskow is a nonvoting member of the Fed’s Open Market Committee, which sets policy on short-term interest rates, investors are hoping that the economy will slow adequately to ease inflation concerns and prompt the central bank to lower interest rates. The Fed left rates unchanged at its last three meetings after 17 straight increases over two years.
O’Donoghue believes investors will be examining valuations of stocks to see whether they are too low because the latest buyout offers carry hefty premiums for some companies.
Interest in private equity deals has increased as costs public companies face for regulatory compliance has increased, in large part due to legislation aimed at curbing high-profile scandals seen in recent years such as the one that eventually felled Enron Corp. In addition, many private equity firms see opportunity in taking a company private, improving operations and reaping the windfall if a company is again taken public.
Four Seasons jumped $18.63, or 29.2 percent, to $82.50 after the luxury hotel chain received an offer to be taken private for $3.7 billion from the controlling shareholder of Four Seasons and investors including Bill Gates’ Cascade Investment LLC.
OSI Restaurant, owner of the Outback Steakhouse chain among others, rose $7.32, or 22.6 percent, to $39.75 after agreeing to be acquired by a private investor group for about $3 billion.
Swift Transportation Co. rose $5.79, or 24.1 percent, to $29.84 after the truckload carrier received a $29-per-share buyout offer from its largest shareholder.
Abbott Laboratories, in a bid to expand its cholesterol drug holdings, agreed to acquire the drugmaker Kos Pharmaceuticals Inc. for about $3.7 billion. Kos surged $26.97, or 53.8 percent, to $77.06, while Abbott was off 17 cents at $47.47.
XM Satellite Radio Holdings Inc., rose $1.78, or 15.6 percent, to $13.17 after the company posted a narrower-than-expected loss for the third quarter and forecast its subscriber base would end the year near the lower end of its prediction.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 1.52 billion shares, compared with 1.51 billion traded Friday.
The Russell 2000 index of smaller companies was up 10.35, or 1.37 percent, at 763.08.
Overseas, Japan’s Nikkei stock average rose 0.09 percent. Britain’s FTSE 100 closed up 1.24 percent, Germany’s DAX index was up 1.43 percent, and France’s CAC-40 was up 1.24 percent.