Stocks were marching up before the release of the Federal Reserve meeting minutes at 2 p.m. EDT -- and they moved sharply higher afterwards. The S&P 500 (SNPINDEX: ^GSPC) gained 1.6% and moved back into positive territory for the year and the Dow Jones Industrial Average (DJINDICES: ^DJI) tacked on 1.5%:
December looks like a go
Stocks got a mid-afternoon jolt from the Federal Reserve communication, indicated it is increasinly likely that the first interest rate hike in nine years is coming next month. The minutes from October's Federal Open Market Committee meeting revealed that several officials believed that the state of key economic indicators -- unemployment, economic growth, and inflation – met the conditions for raising interest rates. More importantly, a majority of officials thought that these conditions "could well be met by the time of the next meeting" in mid-December . The central bank is rarely this explicit in telegraphing its moves, and Wall Street reacted to the added certainty by bidding stocks higher.
As for individual gainers and losers, railroad Norfolk Southern (NSC -0.69%) was the best-performing stock in the S&P today on buyout rumors. And retailing giant Target (TGT -1.20%) slumped after posting its third-quarter earnings results.
Norfolk Southern says no deal
Norfolk Southern rose 6% on four times its normal trading volume after the railroad confirmed that it has received a buyout offer from Canadian Pacific Railway. The bid is for a mixture of stock and cash that values Norfolk Southern at roughly $28 billion, or just above its market capitalization based on yesterday's closing price .
The offer itself isn't a surprise. News first broke about it last week. However, investors may be buying shares in hopes that Canadian Pacific will raise its price. Norfolk Southern last night seemed to reject the current proposal, calling it "low-premium, non-binding, [and] highly conditional," even while saying executives will "carefully evaluate and consider this indication of interest." Presumably, a more attractive proposal might convince Norfolk Southern's management to join serious negotiations.
Still, a linkup between these two railroad giants might not pass regulatory review, management warned. "Any consolidation among Class I railroads in North America would face significant regulatory hurdles," executives said in a statement to shareholders. Norfolk Southern recently posted sharply declining sales and profits for its fiscal third quarter as falling commodity prices hurt the business.
Target's conservative holiday forecast
Target's 5% drop came after the retailer posted solid third-quarter earnings results this morning. Comparable-store sales rose by 1.9%, which was at the high end of the 1% to 2% range that management provided in August. Customer traffic ticked higher, and sales of the high-margin "signature" categories (like baby, health, and apparel) continued to lead the way. Detracting from those wins was a slightly lower gross profit margin as the retailer invested more to promote its in-store brands.
Image source: Target.
Overall, management was happy with the operating trends. "We're pleased with our third quarter financial results, as both sales and adjusted earnings per share were near the upper end of our expectations," CEO Brian Cornell said in a press release.
Target's forecast for the holiday quarter was conservative, though. Executives think comps will improve by between 1% and 2%, compared to a 4% rise over the same period last year. In a conference call with investors, they explained that last year's jump benefited from an easy comparison with the prior year period while the opposite is true in this case .
Still, this holiday season could be a disappointing one for more structural reasons. "The consumer remains cautious, and there are indications of heavy inventory levels at some competitors," Chief Financial Officer Cathy Smith said in the conference call.
