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Buffett and Market Riding the Rails
Sentiment shifts often on Wall Street, be it hour-to-hour, day-to-day, week-to-week, or month-to-month. That is readily apparent this morning, as the stock market is called to open lower despite the news that the Reserve Bank of Australia raised its key lending rate another 25 basis points to 3.50%.
Recall that the market was nearly giddy on Oct. 6 when the Reserve Bank became the first major central bank to raise rates. The move at the time was heralded as a marker signaling the improved prospects for the global economy. The S&P 500 gained 1.4% that day.
This morning the S&P 500 is indicated to decline about 0.7% at the start of trading. We'll give you one guess as to why.
If you guessed economic concerns, consider yourself a member of the Irony Club.
These concerns stem from reports that the Royal Bank of Scotland and Lloyds are receiving $51 billion in another U.K. taxpayer-funded bailout, that Johnson & Johnson (JNJ) is planning to cut 6-7% of its global workforce as part of a restructuring plan, and lingering worries about a comment from a Fed official yesterday regarding the threat of commercial real estate to financial institutions.
A Morgan Stanley downgrade of the U.S. semiconductor sector has been an added weight as well on the futures market.
The opening indication, however, improved after headlines crossed the wires noting Berkshire Hathaway's intention to acquire the remaining 77.4% stake in Burlington Northern (BNI) it doesn't already own for $100 per share in cash and stock.
Prior to this news, the S&P futures were down approximately 10 points, but they are now down six points.
The Berkshire offer is a 31% premium to Monday's closing price and it has put a bid in other rail issues that should bode well for the Dow Jones Transportation Average.
One of the key talking points of the deal is Warren Buffett's contention that his $44 billion offer (including $10 billion of debt) is an "...all-in wager on the economic future of the United States."
Buffett's perspective has helped temper some of the negative thoughts this morning, but it has yet to turn the tide of sentiment altogether as Buffett himself couldn't put a finger on when the pickup in the U.S. will be both robust and sustained. He simply believes better economic times are in the future and that the railroad industry is certain to capitalize when those times arrive.
In the meantime, the market is still confronted with a weak labor market, a depressed housing market, and a huge federal deficit, all of which should be on the FOMC's table for discussion at its two-day meeting, which begins today and culminates with a policy announcement at 2:15 p.m. ET Wednesday.
Today's economic calendar brings the September Factory Orders report (consensus 0.8%; prior -0.8%) and vehicle sales for October.
The market has certainly been skittish of late. The Berkshire-Burlington Northern news will get a lot of press, but the focal point for traders will be whether the market can hold onto yesterday's gains or whether it will give them all back without any fight to protect them, as was the case last Friday when the market fell 2.8% after gaining 2.3% Thursday in the wake of the Q3 GDP report.
Feeds!