BLBG: U.S. Stocks Drop as Dow Chemical, Rohm Overshadow Exxon’s Gain
U.S. stocks fell as plunges by Dow Chemical Co. and Rohm & Haas Co. after financing for their merger fell through overshadowed rallying energy and metal companies.
Dow Chemical declined 20 percent following Kuwait’s decision to scrap a deal that would have provided $9 billion in cash to pay for Rohm & Haas, which tumbled 21 percent. Exxon Mobil Corp. and Chevron Corp. advanced after oil jumped 3.9 percent to $39.17 a barrel as Israeli air strikes in the Gaza Strip raised concern that crude supplies may be disrupted. Newmont Mining Corp. increased 4.8 percent, driven by gold’s rise to an 11-week high.
“The potential financing problems for Dow Chemical are causing people some concern,” said John Carey, who runs the $4.62 billion Pioneer Fund that’s beaten 73 percent of its peers this year. “That could create some problems for other deals in the works. To the extent that M&A speculation was helping to support share prices, that may not be a support.”
The Standard & Poor’s 500 Index lost 0.7 percent to 866.93 at 10:16 a.m. in New York. The Dow Jones Industrial Average fell 39.59 points, or 0.5 percent, to 8,475.96. The Russell 2000 Index of small companies retreated 1.8 percent to 468.25. The MSCI World Index of 23 developed markets rose 0.7 percent to 899.62.
U.S. stocks advanced on Dec. 26, giving the S&P 500 its first back-to-back gains in three weeks, after GMAC LLC’s conversion to a bank spurred a rally in General Motors Corp. The benchmark S&P 500 Index has still plunged 41 percent in 2008 as the most severe financial crisis since the Great Depression dragged the U.S., Europe and Japan into the first simultaneous recessions since World War II.
Eliminating Proceeds
Dow Chemical fell 20 percent to $15.05. Rohm & Haas lost 21 percent to $50.10. Kuwait scrapped a deal to buy a 50 percent stake in Dow Chemical’s plastics unit, eliminating proceeds earmarked for the takeover.
Exxon, the biggest U.S. energy company, climbed 1 percent to $77.95. Chevron added 1.9 percent to $71.66. Crude rose a second day. The Middle East is the world’s largest oil producing region.
Newmont, the biggest U.S. gold producer, gained 4.8 percent to $40.73 after gold advanced 1.4 percent as the conflict in the Middle East boosted the appeal of the precious metal as a haven. Freeport-McMoRan Copper & Gold Inc., the second-largest copper producer, increased 3.9 percent to $23.47 as copper rallied.
There’s more cash available to buy shares than at any time in almost two decades, a sign to some of the most successful investors that equities will rebound after the worst year for U.S. stocks since the Great Depression.
The $8.85 trillion held in cash, bank deposits and money- market funds is equal to 74 percent of the market value of U.S. companies, the highest ratio since 1990, according to Federal Reserve data compiled by Leuthold Group and Bloomberg.
Leuthold, Invesco Aim Advisors Inc., Hennessy Advisors Inc. and BlackRock Inc., which together oversee almost $1.7 trillion, say that’s a sign the S&P 500 will rebound after $1 trillion in credit losses sent the benchmark index toward the steepest annual drop since 1931. The eight prior times that cash peaked compared with the market’s capitalization, the S&P 500 rose an average 24 percent in six months, data compiled by Bloomberg show.
