Stocks surge on eve of election

Wall Street signaled Monday that it didn’t much care which party emerged victorious in today’s congressional elections.

Glee over a continuing wave of takeover deals trumped any election concerns as the bulls grabbed back control of the stock market.

The Dow Jones industrial average surged 119.51 points, or 1%, to 12,105.55, recouping all of last week’s loss, amid a broad rally that spread worldwide.

Blue-chip stocks had eased last week after five straight weeks of gains, and some analysts had expected the market to stay in a holding pattern until the election -- waiting to see if the Democrats would win a majority of seats in one or both chambers of Congress, where Republicans now rule.

Instead, buyers poured in Monday, as generous takeover offers in industries including hotels, restaurants and drugs suggested that stocks were underpriced, even with the Dow already up 13% year to date.

Shares of Four Seasons Hotels Inc., for example, rocketed $18.63, or 29%, to $82.50 after an investment group including Saudi Prince Alwaleed bin Talal and Microsoft co-founder Bill Gates offered $82 a share, or $3.7 billion, to take the luxury hotel chain private.

“These acquisitions got some people excited,� said Larry Peruzzi, a senior trader at money management firm Boston Co.

The election, by contrast, hasn’t stirred much emotion among investors, said Ed Keon, investment strategist at Prudential Equity Group in New York.

“When people ask who’s better for the market -- Democrats or Republicans -- the answer is that it really doesn’t matter much at all,� Keon said. Historically, he noted, there have been major stock bull markets under both parties.

What’s more, a common refrain is that many investors would be happy with political gridlock in Washington, assuming a Democratic victory in the House would lead to a standoff with President Bush on new policy initiatives. The idea is that the economy would be best off just left alone.

Wall Street “loves gridlock better than they love Republicans,� said Thomas Steffanci, investment chief at Glencrest Investment Advisors in Claremont.

The stock market has been rallying since late July even as polls have shown a high likelihood that Republicans would lose control of the House, and possibly the Senate.

Investors are focused more on the fundamentals underpinning share prices, analysts say. Despite some weaker-than-expected economic reports last week, Wall Street still is betting heavily on the “Goldilocks� scenario for the economy, meaning a growth pace neither too fast nor too slow, but just right.

Market bulls have been encouraged since July as the Federal Reserve has gone into a holding pattern with interest rates, corporate earnings growth has remained strong and oil prices have tumbled.

The Dow hit a record closing high of 12,163.66 on Oct. 26.

The continuing boom in merger activity also has helped lift stocks. The dollar value of U.S. merger deals announced this year reached $1.14 trillion Monday, according to Thomson Financial. The pace is easily on track to surpass last year’s total of $1.16 trillion, which was the biggest year for corporate deals since 2000, the year the 1990s market surge ended.

Corporate and private buyers’ willingness to pay more than current share prices in takeover deals makes investors wonder whether other stocks are undervalued as well, analysts say.

The offer for the Four Seasons hotel chain on Monday helped drive up shares of other lodging companies. Starwood Hotels soared $2.06 to $60.36, Hilton Hotels gained 92 cents to $29.48 and Choice Hotels surged $2.24 to $43.79.

Restaurant stocks were sharply higher after OSI Restaurant Partners, which operates Outback Steakhouses and other brands, agreed to be purchased by an investor group for $40 a share, pushing OSI shares up $7.32 to $39.75.

California Pizza Kitchen rose $1.66 to $32.27, Panera Bread jumped $1.68 to $60.83 and Brinker International, parent of the Chili’s chain and others, soared $2.75 to $47.50.

Winners topped losers by 3 to 1 on the New York Stock Exchange. The Standard & Poor’s 500 index rose 15.48 points, or 1.1%, to 1,379.78. The Nasdaq composite rallied 35.16 points, or 1.5%, to 2,365.95.

Some analysts warned that if the Democrats swept to victory in Congress, the stock market could shudder, if briefly. A loss of GOP control might mean that Congress wouldn’t extend the tax cuts on long-term capital gains and dividends that took effect in 2003 and are slated to expire in 2010.

Worry about a possible jump in those tax rates on the horizon “may be the hangover on Wednesday,� Peruzzi said.

In other highlights:

* Drug stocks got a lift after Kos Pharmaceuticals agreed to a $3.7-billion, $78-a-share takeover by Abbott Laboratories. Kos rocketed $26.97 to $77.06; Abbott eased 17 cents to $47.47. Barr Pharmaceuticals rose $1.47 to $51.36, Wyeth added 91 cents to $51.10 and Regeneron Pharmaceuticals rallied $2.44 to $23.22.

* Brokerage shares rose amid optimism about the bull market’s longevity. Merrill Lynch jumped $1.32 to $88.04; Charles Schwab surged $1.01 to $19.

* Networking equipment maker Cisco Systems rose 91 cents to close at $24.68, a two-year high, on the eve of its earnings report Wednesday.

* Bond yields eased. The 10-year Treasury note ended at 4.7%, down from 4.72% on Friday.

* Near-term crude oil futures rose 88 cents to $60.02 a barrel.

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