A strong third quarter start for US Market

Plethora of deal news, lower bond yield and strong ISM report provide good fuel to stocks

US Market was off to a good start for the third quarter after a strong manufacturing report and a spate of merger news lifted the stocks across the board today, Monday, 2 July, 2007. All 10 economic sectors finished sharply higher with the Dow, S&P 500, and Nasdaq rising more than 1% on average. Stocks rallied in spite of crude topping $71/bbl.

The Dow Jones Industrials ended the session with a gain of 126.81 points to close at 13535.43. Tech heavy Nasdaq gained 29.07 points to close at 2632.3 and S&P 500 closed higher by 16.08 points at 1519.43.

Caterpillar, United Tech, Du-Pont, 3M and Exxon Mobil were the main Dow winners for the day while IBM, Merck and GM were the main laggards.

Among the biggest of all deal news today, the parent of Bell Canada agreed to be taken private for a total of $48.5 bln. It included nearly $16 bln in debt and marked the largest private equity buyout ever.

Just after market opened today, it was reported that the ISM Index for June rose to 56.0 (consensus 55.0) as against 55.0 in May, the highest level in 14 months. Since any number above 50 denotes expansion, such strength contributed to the belief that economic activity will pick up.

Utilities lead the way among sectors as materials benefit from weak dollar

When market opened in the morning, the indices were at their highs as all 10 economic sectors remained positive. The indices were extending their reach to the upside following the stronger than expected ISM report.

Of the 10 sectors trading higher, Utilities led the charge, followed by a gain in Materials. Materials benefitted both from a weaker dollar and renewed takeover speculation.

Post lunch, a renewed wave of buying interest left the major averages hitting fresh session highs. With everything from rising interest rates to subprime concerns made the Financials sector the quarter’s culprit, speculation about consolidation in the brokerage sector gave the sector a nice lift lift.

Among other deals that garnered attention today included a $6.3 bln takeover of Manor Care, AT&T's $2.8 bln cash bid for Dobson Communications and various reports that Virgin Media is in talks to be acquired for as much as $20 bln.

The yield on the 10-year note closed below the psychologically important 5.0% level for the first time since the start of June. A downturn in the ISM Index's prices paid component offered some relief on the inflation front.

Volume remains light; market to close half-day tomorrow

Crude oil futures crossed $71/bbl today on speculation that inventories will decline as demand increases later in the year. Terrorist related uncertainty in UK also added to the tension. It was a 10 month high price for the crude. Oil fell earlier in the session on concern that a refinery shutdown would cut demand.

Crude-oil futures for light sweet crude for August delivery closed at $71.09/barrel (higher by $0.41/barrel or 0.6%) on the New York Mercantile Exchange. Prices recovered from an earlier low of $69.60 to reach a high of $71.25.

Volume of shares was light today ahead of the Independence Day holiday on Wednesday, 4 July. There were 1.051 billion shares traded on the New York Stock Exchange, with 25 rising shares for every 7 under pressure. There were 1.458 billion shares traded in the Nasdaq market, with 9 stocks posting gains for every 5 declining.

Tomorrow, the Department of Commerce will report May Factory Orders at 10:00 ET, while Pending Home Sales and Auto/Truck Sales will hit the wires at 10:00 ET and 17:00 ET, respectively. The bond market will close at 2:00 ET tomorrow, while the New York Stock Exchange, Nasdaq, and American Stock Exchange will close at 1:00 ET.