Wednesday, November 4, 2009

Dow Jones Displays Character - Closes Flat

Big relief! Dow Jones in yesterday's trading session closed flat at 9771.91, only 17.53 points down from previous day's close. I mention this as relief because the buzz on the street was that there will be bloodbath on Wall Street. Some voices claimed that it is this anticipation which led to a sharp fall in Indian markets as also in all other Asian markets except China. Moreover the European markets also traded as if there was no tomorrow, red being the favourite colour among all markets there. With all that at the backdrop, you would now appreciate why I expressed relief at Dow closing flat.

On 02 Nov 2009 Dow Jones had showed its hand in moving northwards in short term. I had mentioned that as leadership for rest of the global markets in my last post. For quick reference click the link here- http://archana-archdeb.blogspot.com/2009/11/global-stock-markets-dow-comes-to.html

Leadership that Dow exhibited was to no avail. No global market was ready to follow Dow Jones' example. China was an exception, but then China always plays the market on its own terms - based on its economy's performance. But we were discussing Dow and its tenacity in holding on to sanity against global sell offs. The other way around is still not happening!!

But to be candid I must admit that Dow's strength yesterday had lot to do with some important events that took place. Take a look :-
  • Warren Buffet's Berkshire Hathaway bought the railroad company Burlington Northern Santa Fe Corp in a mega-deal of $44 billion. This signals that Warren Buffet is betting big on revival of American economy. In his own words Warren Buffet described the deal as "It's an all-in wager on the economic future of the United States". With strong American revival there will be increased demand for power and Berkshire owns coal based power company MidAmerican Energy. This company will require coal to be hauled over long distances. That is also where acquisition of a railroad company comes into play, if you get the bigger picture. But in all intricate calculations, US economy surging ahead is what Warren Buffet is betting his last penny on. That is certainly good news for global markets, considering how coupled we all are!
  • Experts expressed their considered opinion that Fed is not likely to hike any interest rates in its November meet. That acted as firm anchor for Dow in trade yesterday.
The salutary effect of Dow showing strength will be felt today across global markets. At the time of writing this post, all Asian markets were trading in positive territory. Indian markets have also opened in green, the colour most elusive for the last eleven trading sessions!!