Tuesday, November 3, 2009

Review of Final Hours and Observations

More setups if you knew what to look for but limited scale out opportunities and only one Vertical Rotation move at lunch time.
The big news story of the day was Warren Buffet's 'categorical bet on the US economy', the billionaire investor's announcement of his largest ever acquisition, the outright purchase of Burlington Northern Santa Fe. It's the second-largest railroad company in the US and Buffet will acquire it for $34 billion. Buffet was quoted as stating that this deal was '... an all-in wager on the economic future of the United States. I love these bets'. He added that ''I basically believe this country will prosper and you'll have more people moving more goods 10 and 20 and 30 years from now, and the rails should benefit. It's a bet on the country, basically.' Prior to today's deal, Buffet's company Berkshire Hathaway already owned a large stake in Burlington Northern since 2007; it now plans to buy the rest of the company, for a total value of $34 billion. The transaction still requires shareholder approval and approval from antitrust regulators.
Yesterday, we noted that Ford had come out with surprisingly optimistic car sales data (as opposed to truck sales data) for the third quarter. Today, GM also came out with positive news, announcing its first monthly gain in US sales in close to two years. Toyota also reported an improvement. GM's October sales were up 4% compared to October 2008; Ford's were up 3%. All carmakers will be tested in the near future however, as the US government's Cash for Clunkers program (now completed) has contributed significantly to their bottom line - how well will carmakers do without it?
Morgan Stanley downgraded the technology sector from 'attractive' to 'cautious' today, cutting its view of Dow component Intel (which is part of the reason the Dow lagged behind the other indexes today).The rise in the US dollar continues, with the greenback now near a one-month high. Typically, this puts pressure on commodity and materials stocks, but the S&P 500 was still able to achieve modest gains. Gold was up as well, in spite of its usual negative correlation to the dollar.
In key earnings news, MasterCard posted better-than-expected third quarter earnings today but spoke of macro-economic weakness and higher marketing expenses. Dow component Johnson & Johnson reaffirmed its earnings outlook for fiscal 2009, but the company is planning to lay off 6% to 7% of its global workforce of 117,000 employees by 2011, hoping to save up to $1.7 billion per year. The company's healthcare group is seeing strong competition from generic drugmakers.
Other than vehicle sales (discussed above), the sole economic data released today pertained to September factory orders. New orders received by US factories were up 0.9%, more than expected. Tomorrow is a crucial economic news day, with the Federal Reserve releasing its latest verdict on interest rates and issuing its policy statement. As well, the ADP Employment Report for October will be released.

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