Stock Market News for May 3, 2011

Late on Sunday, US President Barack Obama declared: “I determined that we had enough intelligence to take action and authorized an operation to get Osama bin Laden and bring him to justice….After a firefight, they killed Osama bin Laden and took custody of his body.” The press briefing instantly led to celebrations among citizens and the cheer was expected to be carried into the markets. However, the news of the death of the al-Qaida chief failed to sustain the gains for long. Combined with economic data and merger and acquisition news, markets rallied in the morning session, but thereafter declined modestly to end in the red.

The Dow Jones Industrial Average (DJIA) dropped less than 0.1% to settle at 12,807.36. The Standard & Poor 500 shed 0.2% to close at 1,361.22. The Nasdaq Composite Index was down 0.3% and finished the day at 2,864.08. On the New York Stock Exchange composite volumes were at 4 billion shares and for every two stocks that advanced, three stocks moved downward. The fear-gauge CBOE Volatility Index rose above 16.

According to the President, the 10-year hunt for the mastermind behind the 9/11 attacks finally came to an end as a “small team of Americans” nailed down al-Qaida chief Osama Bin Laden. During a late-night speech at the White House, Obama declared that “justice has been done”, as under his direction, a small group of Americans launched their attack against a compound in Abad Abad, Pakistan, and gunned down the head of the militant Islamic group. Obama also said: “The death of bin Laden marks the most significant achievement to date in our nation's effort to defeat al Qaeda.” The news allowed global shares to share an uptrend and even the US stock futures were on moving higher. But after the initial rally, US markets failed to continue their winning momentum. Investors fear further terrorist attacks as retaliation against the killing of the al Qaeda chief. These concerns ended the initial cheer, which was taking the benchmarks higher.

According to analysts, the development surely has many positives and has provided people a larger sense of security because of which consumer confidence is likely to rise. The much welcomed news should also drive investors to buy more equities as their fears on global security have been significantly diminished and this will lead to lower equity risk premiums. On the contrary, chances of retaliation cannot be washed out and that might keep a lot of investors worried. The event could not provide much strength to the markets, and analysts opined that the timing of the news is quite improper. The death of Laden has almost become a non-event as it has chipped-in when the markets are busy with earnings results and economic data. Crude prices had slipped more than a percentage following the news of bin Laden’s death. Finally, prices managed to stabilize in the late hours and closed at $113.52.

In earnings news, Dish Network Corp. (NASDAQ:DISH - Analyst Report) (19.0%) and Humana Inc. (NYSE:HUM - Analyst Report) were among the firms to report strong quarterly results and their shares climbed 19.0% and 0.5%, respectively. Chesapeake Energy Corporation (NYSE:CHK - Analyst Report) managed to beat earnings estimates, but shares took a beating and dipped 1.3%. The company was on the wrong footing as it revised spending guidance higher without lifting the production guidance.

Mergers and acquisition news also shared the limelight during the day. News of Teva Pharmaceutical INDUSTRIES Limited (NASDAQ:TEVA - Analyst Report) agreeing to buy Cephalon Inc. (NASDAQ:CEPH) for $6.8 billion in all cash-deal lifted the shares of these companies by 3.4% and 4.0%, respectively. Separately, Community Health Systems, Inc. (NYSE:CYH - Snapshot Report) increased its bid to $4.1 billion for the takeover of Tenet Healthcare Corp. (NYSE:THC - Analyst Report) and said this is the best and final offer. Also, Nasdaq OMX Group Inc. (NASDAQ:NDAQ - Analyst Report) and IntercontinentalExchange, Inc. (NYSE:ICE - Analyst Report) stated that their board officials have granted an exchange offer to buy all the outstanding shares of NYSE Euronext, Inc. (NYSE:NYX - Analyst Report).

Coming to economic reports, The Institute of Supply Management reported an uptick in manufacturing activity. The manufacturing index indicated growth for the 23rd consecutive month in the overall economy, as well as expansion in the manufacturing sector for the 21st consecutive month. The ISM Manufacturing Index decreased to 60.4 in April, following a decrease to 61.2 in March from the 61.4 level in February.

Separately, The Commerce Department reported Construction Spending increased by 1.4% to $768.9 billion during March, against expectations that the figure would increase by 0.4%, after decreasing by 1.4% in February. Year over year, construction spending had declined by 6.7% from the March 2010 estimate of $824.0 billion.

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