MarketView for May 10

Summary 

Share prices moved higher for the third consecutive day on Tuesday, led by utilities and other defensive sectors that may drive further gains as investors bet on profit growth and set aside concerns about weakening demand. The end result was that by the closing bell, all three major equity indexes were in positive territory.

Interestingly, for now at least Wall Street is glossing over any worries concerning euro-zone debt and speculation that the recent selloff in commodities is a harbinger of weak economic growth. About 6.6 billion shares traded on the three major exchanges, a number that was well below the average of 7.73 billion so far in 2011 and lower than last week's levels.

The S&P 500 is off 0.5 percent since the start of the month but remains just below recent highs. Its May 2 intraday level was the highest since early June 2008. Technical indicators point to strength in the S&P utility index. The daily moving average convergence divergence, or MACD, has shown a strong "buy" signal since mid-April and the 14-day momentum is in a positive slope and near its highest since July.

So it should come as no surprise that the leading S&P 500 sector was utilities, a relatively low-growth sector. However, utilities are up about 5.4 percent since April 8 when the recent slide in bond yields began in earnest.

Helping to support the market was news of a trade surplus in China, which eased fears about slow global growth. China posted an $11.4 billion trade surplus in April, nearly four times greater than expected, after exports hit a record on healthy demand and imports rose less than forecast.

Microsoft was an outlier among index leaders, losing 0.6 percent to $25.67 after announcing it plans to buy Skype for $8.5 billion in cash, a price viewed by some on the Street as being too expensive. Shares of eBay, which has a stake in Skype, rose 2.5 percent to $33.93.

After the closing bell, Disney saw its share price fall 2.8 percent to $42.70 after it reported revenue that missed expectations.

Boston Scientific was the most heavily traded stock on the Big Board after Chief Executive Ray Elliot said he will step down at the end of 2011. The surprise announcement sent shares of the medical device maker down 8.9 percent to $7.02.

Among advancers, Dean Foods rose 11.5 percent to $12.24 after posting higher-than-expected earnings for the quarter.

Microsoft to Purchase Skype

Microsoft announced on Tuesday that it plans to acquire Skype for $8.5 billion in its largest-ever acquisition, placing a rich bet on mobile and the Internet to try to best rivals such as Google. In a deal that took a month from offer to signing, the software company outbid Google and Facebook, which sources said offered to partner or buy Skype for $3 billion to $4 billion.

Microsoft's interest in the money-losing, but popular service highlights a need to gain new customers for its Windows and Office software. Skype has 145 million users on average each month and has gained favor among small business users. The Luxembourg-based company, which allows people to make calls at no charge, but has also developed premium services, would give Microsoft a foothold in the video-conferencing market as businesses shift to cheaper ways of communicating.

Skype delayed plans for an IPO that was expected to value the company at more than $3 billion. It looked tie-ups with Facebook and Google. Such a deal was expected to value Skype at $3 billion to $4 billion.

However, Wall Street expressed concern over the announcement, sending Microsoft shares down 0.62 percent to $25.67. If those losses hold, the software giant's market value -- already exceeded by Apple last year -- will slip behind General Electric and begin to approach that of IBM.

Led by private equity firm Silver Lake, eBay and other investors including the Canada Pension Plan Investment Board and Andreessen Horowitz, stand to make $5 billion, or three times their investment.

Microsoft is putting more energy and resources into mobile and the Internet as the personal computer business underpinning its Windows and Office franchise appears to be under threat. Skype could be combined with Microsoft software such as Outlook to appeal to corporate users, while the voice and video communications could link to Microsoft's Xbox live gaming. Skype also would offer Microsoft another route to develop its mobile presence, an area it has already put more energy and resources into as PC usage comes under threat.

Skype would become a new business division within Microsoft with Skype CEO Tony Bates in charge and reporting to Ballmer. "Tony didn't look for it. The ownership group, led by Silver Lake, didn't look for it. We just decided (it was) something that we thought made sense for us," a jubilant Ballmer told reporters.

The sum would not stretch Microsoft. It would bankroll the deal with cash sitting overseas, which would be taxed if Microsoft brought it home.