MarketView for Mayl 2

Summary 

Share prices slipped a bit lower sending all three major equity indexes into negative territory on Monday, as a brief rally resulting from the death of Osama bin Laden gave way to questions around the longevity of the market's recent rally. The resultant impact of bin Laden's demise at the hands of U.S. forces on financial markets prompted a quick flurry of buying, which was unfortunately nothing more than a knee jerk reaction.

Energy and materials were the weakest sectors. Volume was moderate once again with about 7.35 billion shares changing hands, a number that was well below last year's estimated daily average of 8.47 billion shares.

Crude prices ended lower but were off the sharp declines that immediately followed word of the al Qaeda leader's killing, and silver dipped after a recent rally. Aiding share prices somewhat were some major merger and acquisition announcements. Included was an announcement that Teva Pharmaceuticals is set to acquire Cephalon for $6.8 billion. Arch Coal plans to acquire International Coal Group for $3.4 billion.

Teva ended the day up 3.4 percent to $47.27, while Cephalon gained 4 percent to close at $80.11. Arch shares were down 2.2 percent at $33.53, but International Coal rose 30.8 percent to close at $14.43 and was the among the most actively traded stocks on the Big Board. Community Health Systems raised its bid for Tenet Healthcare by $1.75 per share to $7.25. Community Health ended the day down 1.7 percent to close at $30.22, and Tenet fell 3.5 percent to $6.69.

In other deal news, Nasdaq OMX Group and IntercontinentalExchange took their $11 billion takeover bid for NYSE Euronext directly to the NYSE shareholders with a tender offer. NYSE shares were up 0.8 percent at $40.40, while Nasdaq shares were up 0.07 percent at $27.14.

The CBOE Volatility Index, Wall Street's fear gauge, rose 8.8 percent. The VIX index, which often moves inversely to the S&P 500, measures the cost of hedges or protection investors are willing to pay against a fall in the S&P 500.

Economic Data Remains Palatable

The manufacturing sector continued to grow, albeit a bit more slowly for a second straight month in April but their costs rose to the highest level in nearly three years, an industry report showed on Monday. Factory activity eased to 60.4 in April from 61.2 the previous month, the Institute for Supply Management said, a touch higher than Street expectations. The index for prices paid rose to 85.5 from 85, the highest since July 2008.

Growth in new orders, output and hiring all eased from March but suggested the economy could withstand costlier energy. A sharp dollar decline helped the export-heavy sector.

The economy showed other signs of crawling back to health, including a pickup in spending on construction, albeit too slowly to generate brisk employment gains. The Federal Reserve last week said the economy was clawing back from its deep recession at a "moderate pace" and showed it was in no rush to remove its support, despite some signs of inflation pressures building.

The Fed said on Monday its latest survey of senior loan officers showed that banks had made it easier to get loans in the first three months of 2011 -- a positive for the economy after a lengthy period of caution about lending.

"Some banks that had eased standards and terms ... pointed to a more favorable or less uncertain economic outlook," the Fed said.

A separate report on borrowing by small businesses -- which account for most U.S. hiring -- showed loan demand rose again in March, albeit a bit more slowly than in recent months.

Other purchasing manager surveys from around the globe indicated that that while activity softened in the United States and China -- the two largest economies -- it firmed in Europe and India. The euro hit a 17-month high against the dollar on Monday as investors bet that interest rates in the euro zone would continue to rise while the Fed would keep them on hold.

Another report stated that the construction industry managed a 1.4 percent rise in investment spending in March. But February's spending was revised down to a 2.4 percent drop, tempering the report's impact.