Tech stocks are surging after IBM agrees to pay $34 billion for Red Hat

Stocks rose Monday as Wall Street shook off fears about rising rates and signs of slowing growth that have weighed on global markets this month.

The Dow Jones Industrial Average rose 0.82%, or about 200 points. The Nasdaq Composite jumped 1.2%, and the S&P 500 was up 1.3%. After a series of sharp sell-offs in recent weeks, the US indices are on track for their worst month since the financial crisis.

Tech stocks were off to a hot start after IBM announced on Sunday that it would buy Red Hat in a nearly $US34 billion deal, its largest acquisition yet. The deal, which pays Red Hat stockholders $US190 a share, comes at a more than 60% premium to where shares settled on Friday.

Elsewhere, earnings season continues, with HSBC posting a 28% jump in pre-tax profits for the third quarter. After choppy results from high-flying technology companies like Amazon and Google parent company Alphabet had set off alarm last week, investors will be closely watching Facebook and General Electric earnings Tuesday.

“Given the recent sell-off in equities on growth concerns and the importance of tech in the bull market rally, the short-term negative spillover is understandable,” said Jon Gordon of UBS Global Wealth Management.

“But while recent weakness in semiconductors in part reflects a cyclical downturn in demand, we don’t expect tech weakness to undermine the broader market on a sustainable basis.”

Across the Atlantic, German Chancellor Angela Merkel announced she would not seek re-election as leader of the Christian Democratic Union in 2021. The Stoxx Europe 600 was up 1.7% in afternoon trading, with carmakers leading the way higher after Bloomberg reported Beijing is considering cutting its tax on vehicles in half.

Italy dodged a credit downgrade by S&P, easing fears about public spending plans that have brought its populist government head to head with Brussels. Last week, Moody’s cut Rome’s credit rating to one level above junk.

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