Tuesday, November 3, 2009

Sideways Stagger Ahead of Fed

Markets spent most of the day on Tuesday trading in a narrow range in slightly negative territory, with the Dow Industrials the most pressured stocks of the session. In the end, markets finished in mixed fashion as investors weighed a shift in the dollar-commodity-stocks relationship and a mega-deal by Warren Buffett while awaiting a policy decision from the Fed on the morrow.

Overall, stocks began the session lower and gained strength throughout the day, especially in the case of the NASDAQ, which finished on the uptick. Markets are still very much undecided about direction. Additionally, there was some measure of decoupling of gold from the dollar, as the yellow metal soared in price on a sale of 200 metric tons from the International Monetary Fund (IMF) to India's Central Bank, setting a record price in the process.

The extraordinary rise in the price of gold came in the face of a stronger dollar, which is absolutely counter to the prevailing trend. Though the dollar weakened through the day, oil and silver also gained in price, but the relationship was badly dented, with the commodities working on their own path, unrelated to that of the greenback.

This conundrum had heads spinning in the trading pits, from futures to forex. The implications of such a huge buy by India's Central Bank, without any hint of a discount - and with the understanding that they are prepared to purchase more - leaves dollar traders in the lurch if India's intent is to partially back the rupee with physical gold. It represents a dramatic shift away from fiat currency to hard assets.

Another item buttressing the markets was Berkshire Hathaway's Warren Buffet announcing the purchase of one of the largest railroad operations in the country, Burlington Northern Santa fe (BNI). The $44 billion deal, Berkshire's largest ever, will be paid in stock and cash. Additionally, Berkshire Hathaway announced a 50-for-1 split of its Class B common stock, which will make the pricey shares more attractive to the general public. The ticker symbol BRK-B currently trades in a range around 3,300 per share, putting even ten shares out of reach of the ordinary investor. After the split, the stock will sell initially around a much more reasonable price of 66 per share.

On the news, Burlington Northern (BNI) gained 20.93, to 97.00 at the close.

Dow 9,771.91, -17.53 (0.18%)
Nasdaq 2,057.32, +8.12 (0.40%)
S&P 500 1,045.41. +2.53 (0.24%)
NYSE Composite 6,812.70, +27.76 (0.41%)

On the day, advancing issues beat decliners, 3888-2563. New highs regained the high ground over new lows, though by the narrowest of margins, 98-94. Evidently, investors are standing pat until after the Fed speaks. Oddly enough, the Fed is not expected to say much, if anything, different from policy statements from the past 8 months. Investors are looking for any subtle change in wording of their statement which might indicate a willingness to raise rates in the near term. The outlook is for the Fed to keep rates at their absurdly low levels until Spring. What also is weighing on investors' minds is the unemployment picture. While the govrnment's Non-farms payroll data will be released on Friday, the market will get an early glimpse tomorrow morning when ADP releases it's proprietary private sector employment report for October.

Volumes were muted, without a doubt in anticipation of the FOMC rate decision on Wednesday at 2:00 pm. Instead of outright selling, investors are showing a good deal of resolve, especially in the face of recent market weakness, preferring to hold stocks and simply not stake out new positions presently.

NYSE Volume 6,209,336,000
Nasdaq Volume 2,042,206,500

As mentioned above, commodities took off on their own trajectory today. Oil gained $1.47, to $79.60. Gold soared $31.20 to a new all-time high of $1,085.20. Silver gained in sympathy, up a very healthy 75 cents, to $17.19, close to its highs for the year.

Uncertainty reigns at the moment, though the current tightness should abate with the release of key economic data and the Fed announcement. With stocks off roughly 5% from their recent highs, there should be no lack of demand pent up for stock speculation into the holidays.

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