Market Wrap-up: markets hit new highs absent economic news or big events

2010-01-19

Despite mixed trading in many stocks as a result of confusing results from Citigroup – C and the culmination of a deal between Kraft – KFT and Cadbury – CBY, the markets had a pretty robust day as investors bought stocks that had sold off in the previous session.  Healthcare stocks fared the best on speculation that a Republican election to the MA seat could stall the government-proposed plan.  Tech was also strong in anticipation of strong results from IBM after the market close.

Citigroup’s – C earnings almost started off the market on the wrong foot.  The company posted a $7.6bn or 33c loss due to charges related to the repayment of the government’s investment and guarantees.  The results were very much in line with expectations, and in fact credit quality seemed to stabilize, particularly outside the US.  Nevertheless, investors were selling the stock heavily before the market opened, shooting first and asking questions later.  After analysts came out with the verdict that the results were generally positive and following an uneventful earnings call, the stock gained almost 7% from its low point for the day.

Cadbury finally accepted a deal to sell to Kraft in exchange for 500 pence in cash and 0.1874 new Kraft shares for each Cadbury share.  The offer values Cadbury at GBP12bn, more than 15% higher than the original bid by Kraft.  The deal has been making the news because of its size but also because of the involvement of some heavy-hitter investors: Warren Buffett first came out earlier this month and said that Kraft should reduce the number of shares to be issued to Cadbury because it does not have a strong currency right now (read: the shares are trading too low).  More recently, Bill Ackman followed suit, disclosing a near-$1bn investment in Kraft stock and making the announcement that it should use more cash and less stock.

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