US stocks rebounded Tuesday to recoup much of the previous day’s biggest loss of the year for benchmark indexes as investors found confidence in robust corporate earnings and PC-maker Dell Inc’s decision to go private in the biggest leveraged buyout deal since the financial crisis.
Shares found some support in today’s economic data. The Institute for Supply Management’s index of US non-manufacturing businesses, which covers about 90 percent of the economy, dropped to 55.2 in January from 55.7 in the prior month. Any reading above 50 indicates expansion and, when considered in combination with last week’s better-than-expected manufacturing report, it becomes evident that the private-sector is holding up OK despite the turbulence in the public sector.
Separately, a CoreLogic report showed US home prices rose 0.4 percent in December, bringing the yearly gain to 8.3 percent and marking its biggest rise since May 2006.
Dell Inc added 1.1 percent 1.1 percent after the world’s third largest personal-computer maker agreed to be purchased in a $24.4 billion dollar deal. The buyout price represents a 25 percent premium over the closing price of January 11; the last trading day before details of the deal was reported by Bloomberg News.
Michael Dell will regain majority control over the company he started nearly three decades ago. The widening gap between the valuation differential between bonds and stocks are likely to fuel further share buybacks and leveraged buyouts, predict some analysts.
The Dow Jones Industrial Average (DJIA) jumped 99 points after losing nearly 130 points yesterday, the steepest decline of the year. The S&P 500 Index (SPX) rose 16 points with technology pacing the gains among its 10 business groups, all of which closed higher.
Treasuries slipped as US stocks bounced back and European equities recovered from the biggest decline in three months, diminishing demand for safe-haven assets.
Meanwhile, European stocks marched ahead Tuesday, climbing the most in four weeks after reports showed an index of euro-area service output contracted less than forecast and corporate earnings came in mostly higher than estimated.
The Stoxx Europe 600 index climbed 0.6 percent to 285.56 after falling the most since Oct 23 yesterday amid indications the region’s debt crisis is deepening.
The German DAX 30 index advanced 0.4 percent in Frankfurt, helped by a 1.4 percent rise in Deutsche Bank AG.
The CAC 40 index rose 1 percent in Paris, lifted by a 1.5 percent rise in drug-maker Sanofi SA. EU regulators approved the company’s bowel cancer drug Zaltrap.
Our Trend Tracking Indexes (TTIs) picked up speed after yesterday’s pullback with the Domestic TTI now sitting at +3.10% while the International TTI reached +11.21%.
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