Stocks wilted Wednesday as comments from former Federal Reserve Chairman Alan Greenspan and worries about upcoming economic data deflated a rally fed by takeover activity.
Stocks initially rose, lifting the Dow Jones industrials briefly above 13,600 for the first time, after the market got a fresh load of deal-related news that included a possible bidding battle over aluminum producer Alcan Inc. But the excitement waned after a media report that Greenspan expressed concern about an eventual sharp decline in China’s stock market — which has recently been hitting record highs.
Wall Street’s mood also dampened when energy prices failed to ease despite a rebound in U.S. crude and gasoline inventories last week. And with key reports on durable goods and new home sales due for release Thursday and the long Memorial Day weekend looming, investors adopted a defensive stance.
Strong merger and acquisition activity has for weeks been the primary force lifting the Dow, which crossed over the 13,000 milestone less than a month ago. So after some cautionary comments from Greenspan, analysts were not surprised to see investors take a breather.
“He still carries a lot of clout,” said Steven DeSanctis, small cap strategist with Prudential Equity Group, noting that U.S. investors are also very focused on the Chinese economy. “You get a data point like that and people start to take profits, get a little nervous.”
The Dow fell 14.30, or 0.11 percent, to 13,525.65, after climbing to an intraday trading record of 13,609.76.
Broader stock indicators were also lower. The Standard & Poor’s 500 index fell 1.84, or 0.12 percent, to 1,522.28, still unable to finish above its record close of 1,527.46 set in March 2000.
The Nasdaq composite index slipped 10.97, or 0.42 percent, to 2,577.05, after briefly trading above the 2,600 mark for the first time in more than six years.
Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.86 percent from 4.83 percent late Tuesday.
Giving stocks an early lift was news that Alcoa Inc.’s $27.6 billion hostile bid for rival Alcan was rebuffed, and that Canadian media reported that Australian mining giant BHP Billiton Ltd. might make its own offer.
Alcoa rose $1.42, or 3.7 percent, to $40.37; Alcan rose $4.86, or 6 percent, to $85.89; and BHP Billiton rose $1.01, or 2 percent, to $51.76.
The report followed news late Tuesday that Morgan Stanley Real Estate will acquire real estate investment trust Crescent Real Estate Equities Co. for $2.34 billion, and that Payless ShoeSource Inc. will buy competing shoe store chain Stride Rite for about $800 million.
Stride Rite soared $4.76, or 31 percent, to $20.21. Payless rose $3.24, or 10.2 percent, to $35.14.
Adding to the takeover flurry, the Bancroft family, which controls Dow Jones & Co., planned to meet privately to discuss a $5 billion bid by Rupert Murdoch’s News Corp., according to a report in The Wall Street Journal, which is owned by Dow Jones. Dow Jones rose $1.28, or 2.5 percent, to $52.74.
The stock market has been surging on recent deals, as they signal there is ample cash in the marketplace and that corporate executive are confident about the economy. About $2.3 trillion worth of deals have been announced so far this year, according to financial data provider Dealogic, and the tally is on track to beat last year’s record $4 trillion.
Though most market participants are optimistic about the stock market in the long-term, many are bracing for a short-term dip once the takeover euphoria wears off.
“The market’s been held up by all of this M&A activity, not by fundamentals,” said Ed Peters, chief investment officer at PanAgora Asset Management Inc.
Corporate profits have been slowing, but remain fairly strong. A new batch of strong earnings Wednesday, particularly from retailers, reassured investors that the economy is not so weak that it is destroying company’s profits or consumer spending.
Target, the second-largest U.S. discount chain, rose 56 cents to $58.60 after reporting its first-quarter profit beat estimates due to strong sales of spring merchandise.
But many investors worry about energy prices eventually eating into discretionary spending. Crude futures rose 26 cents to $65.77 a barrel on the New York Mercantile Exchange, after a 1.5 million barrel gain in gasoline stockpiles last week was not enough to convince traders that supplies will be sufficient ahead of the summer driving season.
The dollar declined, and gold rose.
The Russell 2000 index of smaller companies fell 3.38, or 0.40 percent, to 836.54.
Advancing issues outnumbered decliners by about 10 to 7 on the New York Stock Exchange, where volume came to 1.60 billion shares, up from 1.48 billion Tuesday.
Chinese stocks swelled to a record for the third straight session Wednesday on optimism over reports the government may triple quotas for foreign investment in local bourses. The benchmark Shanghai Composite Index gained 1.5 percent to 4,173.71. The Shenzhen Composite Index rose 2.1 percent to 1,223.98, also a record close.
Japan’s Nikkei stock average rose 0.14 percent. Britain’s FTSE 100 rose 0.15 percent, Germany’s DAX index added 1.00 percent, and France’s CAC-40 advanced 0.50 percent.