MarketView for April 4

Summary 

It was a lukewarm day on Wall Street on Monday with the S&P 500 index failing to break a level that has held since mid-February and ending flat despite the announcements of some major acquisition deals and a continuing increase in optimism regarding the seemingly continuing economic growth. However, caution ahead of earnings season held volume to its lowest level this year and suggested that the recent rally among stock may be coming to an end.

The benchmark S&P 500 hovered slightly below 1,333, which it has not closed above since mid-February. The level is double the 12-year low hit in March 2009 and not far from 1,344, the S&P's highest since June 2008.

About 5.94 billion shares changed hands among the three major exchanges, making it the lowest volume of the year and was well below last year's estimated daily average volume of 8.47 billion shares.

After the bell, Texas Instruments announced that it plans to acquire smaller rival National Semiconductor for about $6.5 billion in one of the microchip industry's largest deals in years. Following the announcement, Texas Instruments' shares fell 1.8 percent to $33.50 in extended trading, while National Semiconductor's rose 73.4 percent to $24.39.

The European Central Bank, at its policy meeting on Thursday, is expected to raise rates by 25 basis points from a record low in reaction to rising inflationary pressures in the euro zone. Two more 25-basis-point rate hikes are factored in by year-end.

Pfizer rose 0.8 percent to $20.54 after the pharmaceutical giant agreed to sell its Capsugel unit, the world's largest maker of hard capsules, to private equity firm KKR for nearly $2.4 billion.

Shares of defense contractor General Dynamics fell 5.2 percent to $73.37 after one of its Gulfstream Aerospace jets crashed on a test flight, killing four.

Southwest Airlines closed down 1.7 percent to $12.46 after about 70 flights were canceled for safety inspections. A Southwest jet made an emergency landing with a hole in the cabin on Friday.

Time Running Out on Debt Limit

The United States will hit the legal limit on its ability to borrow no later than May 16, Treasury Secretary Timothy Geithner said on Monday, hoping to push Congress to act to avoid a debt default.

"The longer Congress fails to act, the more we risk that investors here and around the world will lose confidence in our ability to meet our commitments and our obligations," Geithner said in a letter to congressional leaders. "Default by the United States is unthinkable."

Previously, the Treasury had forecast that the $14.3 trillion statutory debt limit would be reached between April 15 and May 31. As of Friday, Treasury borrowing stood just $95 billion from the ceiling.

The debt-limit showdown comes as Congress struggles to complete a spending package that would keep the government operating beyond Friday. Republicans are seeking to use that bill to enact deep spending cuts and lawmakers are focusing on a proposal to trim this year's budget by $33 billion, a relatively small amount compared with a projected $1.4 trillion deficit.

Geithner said a failure to raise the debt ceiling in a timely way would push interest rates higher and spark "a financial crisis potentially more severe than the crisis from which we are only starting to recover."

Both Geithner and Federal Reserve Chairman Ben Bernanke have said a failure to raise the ceiling could have "catastrophic consequences."

As the government nears the debt ceiling, the Treasury has authority to take certain extraordinary measures to postpone the date the United States would default on its obligations. However, those actions would be exhausted after about eight weeks and there would be "no headroom" to borrow after July 8, Geithner said.

Some lawmakers have called for legislation to force the Treasury to first pay interest on U.S. bonds before other obligations, such as unemployment benefits and Social Security and Medicare payments, as a way to stave off a debt default.

They have also asked Treasury whether financial assets such as the country's gold reserves or the government's portfolio of student loans could be sold to avoid raising the debt ceiling. Treasury has rejected the proposals as unworkable.

"To attempt a fire sale of financial assets in an effort to buy time for Congress to act would be damaging to financial markets and the economy and would undermine confidence in the United States," Geithner said.

Geithner said that while the debt ceiling projections could change, the Obama administration does not believe they could change in a way that would give Congress more time to raise the debt ceiling. He said Treasury would provide updated projections in early May.

National Semiconductor Acquired by Texas Instruments

Texas Instruments has agreed to acquire National Semiconductor for $6.5 billion, paying a hefty near-80 percent premium to merge two of the industry's oldest firms into a dominant force in analog microchips.

It is likely that Texas Instruments seeks to dominate a vast but fragmented market for analog chips -- for instance, power management in wireless devices. At the same time National Semiconductor is likely looking for a way to circumvent the fact that it has few, if any really solid long-term growth prospects.

Executives addressed analysts' questions on a conference call Monday afternoon. Among the top issues was the price tag: some analysts speculate that Texas Instruments might be hoping to seal a deal and thereby thwart rival bidders.

National Semiconductor's stock performance, down about 9 percent since the end of February, reflects flaccid growth expectations after disappointing investors in recent quarters.

Texas Instruments, which has been winding down its less profitable baseband mobile telephone business while increasing its stake in analog chips, said it will finance the deal with a combination of existing cash and debt. The company in recent years has acquired facilities and equipment, giving it the capacity to produce $4.5 billion of analog chips a year in the United States, Japan and China.

Texas Instruments said analog chips will account for 50 percent of its revenue following the acquisition of National Semiconductor. Under the terms of the deal, which has been unanimously approved by the boards of directors of both companies, TI will pay $25 for each share of National Semi's common stock.