Wall Street overcame its recent caution Wednesday, finishing with a modest gain but off its earlier high amid a raft of acquisitions, which propped up stocks, and news of lower-than-expected gross domestic product growth, which eased inflation fears.
Acquisitions in the technology and pharmaceutical industries promised to reinvigorate those lagging sectors. Google Inc., Seagate Technologies and IBM Corp. all announced major purchases, while Allergan Inc. said it will buy Inamed Corp.
And while final third-quarter GDP was lower than anticipated, with the economy growing at an annualized rate of 4.1 percent instead of the expected 4.3 percent, investors welcomed the news as another sign that the Federal Reserve would be hard pressed to continue raising interest rates. The 4.1 percent growth rate was still considered strong.
Yet despite the good news, stocks still saw a downturn in afternoon trading, giving up more substantial gains from earlier in the session. While stocks are not expected to give up the year’s modest gains, a further substantial push higher remains in doubt.
“We’re definitely picking up some momentum going into year’s end, but that’s not really translating into any sense of urgency,” said Hugh Johnson, chairman and chief investment officer at Johnson Illington Advisors in Albany, N.Y. “People are content to hold on to some cash and not be fully invested.”
The Dow Jones industrial average was up 28.18 points, or 0.26 percent, at the close, while the broader Standard & Poor’s 500-stock index added 3.17 points, or 0.25 percent. The Nasdaq composite index, full of technology stocks, gained 9.24 points, or 0.42 percent.
Bonds continued the previous session’s sell-off, with the yield on the 10-year Treasury note rising to 4.49 percent from 4.47 percent late Tuesday. The dollar rose against most major currencies.
Crude oil futures were little changed after the Energy Department reported a slight rise in the nation’s crude oil stockpiles in its weekly inventory report. A barrel of light crude oil finished the day down a penny at $58.55 on the New York Mercantile Exchange.
With just six trading days to go before 2006, the year likely will end with modest gains, as opposed to 2004’s strong year-end rally. However, that could make early 2006 a little better.
“We sold off pretty heavily in January coming off last year’s rally, and I don’t think we’ll see as much of that in 2006,” said Joseph Battipaglia, chief investment officer at Ryan Beck & Co. “This year’s start could be a little more bullish, and you still have lots of companies sitting on a lot of cash that can be put to use in 2006.”
The acquisition deals fueled plenty of trading activity Wednesday. Despite posting early gains, Google fell $3.41 to $426.33 after winning the bidding war for a piece of Time Warner Inc.’s America Online division, paying $1 billion for a 5 percent stake. Time Warner lost 16 cents to $17.58, while Microsoft Corp., which had hoped to edge out its online rival for the stake, slipped 13 cents to $26.73.
Computer hard-drive maker Seagate said it will pay $1.9 billion in stock for rival Maxtor Corp., hoping the combined company will be able to reduce costs while gaining market share. Seagate climbed 63 cents to $20.23, while Maxtor, which is valued at $7.25 per share in the deal, soared $2.41, or 53 percent, to $6.93.
Dow industrial IBM added 64 cents to $83.12 after announcing the purchase of Micromuse Inc., which makes software to manage video and voice traffic on computer networks, for $865 million in cash, or $10 per share. Micromuse surged $2.71, or 38 percent, to $9.92.
In the pharmaceutical sector, Inamed climbed $1.26 to $87.02 after Allergan, best known for its Botox skin treatment, agreed to pay up to $3 billion for the medical device maker. Inamed shareholders can opt for $84 per share in cash or a stock swap. Allergan gained 71 cents to $107.31.
Rising demand led FedEx Corp. to easily surpass Wall Street forecasts for its quarterly profits. Second-quarter earnings at the shipping company rose 33 percent, beating analysts expectations by 13 cents per share. FedEx, which also raised its full-year earnings forecasts, added $5.21, or 5.3 percent, to $103.70.
Shares of sporting goods maker Nike Inc. tumbled $2.73 to $85.75 after the company posted a 15 percent increase in quarterly profits, but warned that future orders were lagging. The company beat quarterly profit projections by 11 cents per share.
Overseas, Japan’s Nikkei average surged 2.02 percent. In Europe, Britain’s FTSE 100 closed up 0.71 percent, France’s CAC-40 gained 1.04 percent and Germany’s DAX index rose 0.76 percent.