Category: Markets / Finance / February 5, 2013 6:02 PM EST
Stocks climbed on Tuesday (February 5), recovering a day after the market's biggest sell-off since November, as stronger-than-expected earnings brightened the profit picture.
Dell Inc's stock rose after the world's No. 3 computer maker agreed to be taken private in a $24.4 billion (USD) deal, the largest leveraged buyout since the 2008-2009 financial crisis. The stock gained 1.1 percent to $13.42.
"It seems to me like the game plan for Dell is ultimately to sell the company to another big tech maker. It remains to be seen, you know, in the future whether the PC business is going to be as competitive as it currently is," said Jon Marino, the editor of Thomson Reuters' private equity hub (peHUB).
The deal, which requires shareholder approval, would end a 24-year run on public markets for a company that was conceived in a college dorm room and quickly rose to the top of the global personal computer business - only to be rendered an also-ran over the past decade as PC prices crumbled and customers moved to tablets and smartphones.
"So maybe we could see another private equity firm even buy a part of HP, like its desktop business. Stay away from those printers - you don't want to be there. And you can merge those two companies together, eventually. It's going to be pretty interesting to see us consolidate the laptop business into maybe just two or three players. Apple, obviously, isn't going away," Marino added.
Dell executives said on Tuesday that the company will stick to a strategy of expanding its software and services offerings for large companies, with the goal of becoming a full-service provider of corporate computing services in the mold of the highly profitable IBM. They downplayed speculation that Dell might spin off the low-margin PC business on which it made its name.
On the other hand, all 10 S&P sectors ended higher and the S&P 500 and Nasdaq gained more than 1 percent.
The market's bounce follows a sell-off on Monday that gave the S&P 500 its biggest percentage decline since mid-November. The benchmark remains up 6 percent since the start of the year and is less than 4 percent away from its all-time closing high of 1,565.15 from October 2007.
Analysts said fourth-quarter results have been among factors helping to boost stocks. On Tuesday, Archer Daniels Midland reported revenue and adjusted fourth-quarter earnings that beat expectations, boosted by strong global demand for oilseeds. Shares rose 3.3 percent to $29.38.
The Dow Jones industrial average was up 99.22 points, or 0.71 percent, at 13,979.30. The Standard & Poor's 500 Index was up 15.58 points, or 1.04 percent, at 1,511.29.
The Nasdaq Composite Index was up 40.41 points, or 1.29 percent, at 3,171.58.
The market shot higher at the start of the year after U.S. lawmakers were able to come to a last-minute agreement to avoid a national "fiscal cliff," but questions on spending cuts remain.
President Barack Obama on Tuesday urged Congress to pass a small package of spending cuts and tax reforms. Though the plan was quickly rebuffed by Republican leaders, investors are looking for an agreement.
With results in from more than half of the S&P 500 companies, 69 percent have beaten profit expectations, compared with the 62 percent average since 1994 and the 65 percent average over the past four quarters. Sixty-six percent of companies have beaten on revenue.
Fourth-quarter earnings for S&P 500 companies are expected to rise 4.5 percent, according to the data, above the 1.9 percent forecast at the start of earnings season.
On the down side, McGraw-Hill shares slumped 10.7 percent to $44.92 after the U.S. Justice Department filed a civil lawsuit seeking $5 billion over mortgage bond ratings. Standard & Poor's, a McGraw Hill unit, was accused of inflating ratings and understating risk out of a desire to gain more business from investment banks.
Volume was roughly 6.7 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.
Advancers outpaced decliners on the NYSE by nearly 11 to 4 and on the Nasdaq by about 3 to 1.
(Video Source: Reuters)