Monday, May 14, 2007

Market Update (JP Morgan)

The major averages finished mixed as concerns about economic growth and trepidation ahead of key inflation data overshadowed more M&A news.

Per usual, investors were again greeted with another wave of M&A news Monday morning.

The biggest news was confirmation that DaimlerChrysler (DCX 83.16 +1.16) finally found a buyer for its struggling Chrysler unit. Cerberus Capital Management agreed to acquire an 80% stake for $7.45 bln. However, since Chrysler has been on the block for three months and the actual price tag masks a failed $36 bln merger effort between Daimler AG and Chrysler, investors didn't get too worked up about it.

Nevertheless, autos (+4.0%) comprised the best-performing S&P industry today. An analyst upgrade of General Motors (GM 30.53 + 1.07) contributed to the outperformance. GM's 3.6% surge accounted for nearly half of the Dow's 20-point advance. It was also reported that rival Ford Motor's (F 8.76 +0.39) founding family is mulling the divestiture of their controlling stake.

Despite the strength in autos, weakness in everything from restaurants and retail to homebuilding prevented the Discretionary sector from finishing higher. Investors also exhibited a sense of caution ahead of Tuesday's Consumer Price Index.

Even worse for the bulls was the fact that today's biggest laggards were also among the most influential sectors.

Financials, which carries the heaviest weighting on the S&P 500, paced the way lower. The Fed saying in a survey that U.S. banks dramatically tightened their lending standards over the first three months of 2007 took an intraday toll on the rate-sensitive sector.

A JP Morgan strategist

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