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Sunday 21 January 2018

US stocks rise on Pfizer deal hopes

Trader Patrick McKeon works on the floor of the New York Stock Exchange (AP)
Trader Patrick McKeon works on the floor of the New York Stock Exchange (AP)

It was a choppy ride for the stock market yesterday that ended with major US indexes closing mostly higher.

Traders were pulled in multiple directions. Stocks opened higher, fell in the afternoon, and then rose again in the last hour of trading.

Bank stocks fell after Bank of America said a financial error would force it to cancel its stock buyback plan and dividend increase.

However healthcare stocks rose after US drug giant Pfizer renewed its pursuit of a merger with British rival AstraZeneca. Formerly highflying technology stocks fell again, dragging the Nasdaq composite index into the red.

The Standard & Poor's 500 index rose 6.03 points, or 0.3%, to close at 1,869.43. The Dow Jones industrial average rose 87.28 points, or 0.5%, to 16,448.74 and the Nasdaq edged down 1.16 points, or 0.03%, to 4,074.40.

Bank of America sank 1 dollar, or 6.3%, to 14.95 dollars after it unexpectedly announced it would suspend its stock buyback programme and dividend increase.

The bank discovered an error in how it calculates its capital ratio, a crucial measure of a bank's financial strength. The Federal Reserve asked the bank to put its buyback and dividend increase on hold until the error was fixed.

High-risk technology stocks were another area of weakness yesterday as investors continue to cut their exposure to high-growth names and turn their focus to larger dividend-paying companies.

Amazon fell 7.25 dollars, or 2.5%, to 296.58 dollars after falling 10% on Friday. Netflix lost 7.87 dollars, or 2.4%, to 314.21 dollars and Facebook fell 1.57 dollars, or 2.7%, to 56.14 dollars.

In contrast, "old" technology companies such as Microsoft, Apple and IBM, which have more mature businesses and pay quarterly dividends, rose 2% or more yesterday.

High-growth technology and biotechnology stocks have been falling for several weeks now. The Nasdaq is down 3% in April, while the S&P 500 and Dow are roughly flat.

Traders say the selling has been coming from large investors, who have been moving out of high-growth stocks and into safer investments. The Russell 2000, an index made up mostly of smaller companies, is down nearly 5% this month.

"When you have so many investors doing the same thing at the same time, you get these exaggerated moves in some of these stocks," said Ian Winer, director of equity trading at Wedbush Securities.

Health-care stocks did well after Pfizer renewed its push to buy British drug company AstraZeneca for 100 billion dollars.

The deal would be the latest big merger in the drug industry in recent weeks, if it happens. AstraZeneca jumped 8.35 dollars, or 12%, to 77.01 dollars. Pfizer rose 1.29 dollars, or 4.2%, to 32.04 dollars.

The healthcare industry has seen several big deals this year. Just in the last two weeks, Zimmer Holdings announced it would buy medical device maker Biomet for 13.4 billion dollars, Valeant Pharmaceuticals said it would bid for Botox maker Allergan for 50 billion dollars and Novartis agreed to buy GlaxoSmithKline's cancer drug business for 16 billion dollars.

"These deals have a halo effect on the rest of the market, particularly in the industry where it happens, because investors expect it means more deals are on their way," said Quincy Krosby, market strategist with Prudential Financial.

Investors now turn their focus to the Federal Reserve, which starts a two-day policy meeting today.

The central bank is expected to further dial back its economic stimulus by reducing its monthly bond purchases to 45 billion dollars. Those monthly purchases, which totalled 85 billion dollars in December, have helped hold down long-term interest rates for consumers and businesses.

Press Association

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