Goldilocks economy returns?

June 9, 2014 07:02 AM

U.S. stocks fluctuated, after equity benchmarks climbed to records last week, as Family Dollar Stores Inc. rallied while Merck & Co. slipped amid deals activity.

Family Dollar jumped 14% as a filing showed Carl Icahn has amassed a 9.4% stake. Hillshire Brands Co. gained 4.8% after Tyson Foods Inc. said it made a binding offer. Merck slid 0.9% after agreeing to buy Idenix Pharmaceuticals Inc. for $3.9 billion. Apple Inc. traded at $92.05, reflecting a seven-for-one stock split.

The Standard & Poor’s 500 Index (CME:SPM14) gained 0.1% to a record 1,951.01 at 9:30 a.m. in New York. The Dow Jones Industrial Average added 6.8 points, or less than 0.1%, to 16,931.03. Trading in U.S. stocks was in line with the 30-day average at this time of day.

“There’s a fair amount of skepticism over if we are at peak valuations,” Michael Arone, the Boston-based chief investment strategist at State Street Global Advisors’ U.S. Intermediary Business, said by phone. State Street Corp. oversees $2.4 trillion in assets. “My view is the Goldilocks economy is back -- not too cold, not too hot, but just right. What we’re starting to see is companies starting to do capital expenditures and M&A to invest in their businesses.”

The S&P 500 advanced 1.3% to a record 1,949.44 last week as the European Central Bank lowered interest rates and a report showed that the U.S. economy created more jobs than expected. The index has continued to climb to records even as the U.S. economy contracted for the first time in three years during the first quarter.

Fed Stimulus

Federal Reserve officials are watching the labor market as they move to complete their bond-purchase program late this year and start considering the timing of the first interest-rate increase since 2006. Central-bank stimulus has helped propel the S&P 500 higher by as much as 188% from its bear-market low in March 2009.

The ECB’s stimulus sent European bond yields to all-time lows and helped boost the region’s equities to near the highest in six years.

The U.S. stocks benchmark has rebounded 7.4% through June 6 since a selloff in small-cap and Internet shares spread to the broader market, dragging the index to a two-month low in April. The measure trades at 16.5 times the projected earnings of its members, up from a multiple of 14.8 at the start of February.

The Chicago Board Options Exchange Volatility Index climbed 4.1% to 11.17. The gauge, known as the VIX, fell 5.9% last week to 10.73, the lowest level since February 2007.

Dollar Stores

Family Dollar jumped 14% to $69.29. Icahn and his affiliates bought 10.7 million shares and options for about $265.8 million, according to a June 6 regulatory filing. The billionaire may push for operating changes and ask the company to explore strategic alternatives, as well as potentially seeking board seats, according to the filing.

Dollar General Corp. rallied 12% to $65.12. Jefferies Group LLC raised its rating on the stock to buy from hold after Icahn’s purchase of Family Dollar shares. The move may lead to a merger with Dollar General, Jefferies said. Dollar Tree Inc. gained 2.5% to $56.53.

Tyson slid 2.2% to $39.24. The food company has made a unilaterally binding offer of $63 a share for Hillshire, the maker of Jimmy Dean sausages and Ball Park hot dogs, it said in a statement. Tyson said the deal will remain in effect until Dec. 12. Hillshire jumped 4.8% to $61.76. Pilgrim’s Pride Corp. dropped 4.2% to $25.18 after saying it withdrew a competing proposal.

Merck, Neustar

Idenix Pharmaceuticals Inc. soared 231% to $23.97 after Merck said it has agreed to acquire the maker of experimental Hepatitis C drugs for $24.50 a share in cash, or about $3.85 billion. Merck, the second-biggest U.S. drugmaker, slipped 0.9% to $57.35 for the biggest decline in the Dow.

NeuStar Inc. sank 7.2% to $24.75. An e-mail marked confidential that was posted briefly on June 6 on the Federal Communications Commission website indicated the agency may transfer a contract with Neustar to Ericsson AB. The FCC has yet to award the new five-year contract for telephone-number switching, a service that NeuStar has handled since 1997.

Apple shares rose 0.4% to $92.05 following the stock split. The shares closed Friday at $645.57. Apple said on April 23 it was doing the split so shares would be available to a wider pool of investors. Each investor on June 2 received six additional shares.

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