The stock market churns sideways as traders remain indecisive. Positive economic data combined with merger and acquisition news was not enough to shake off a Morgan Stanley's downgrade of the semiconductor sector and a generally sour mood for the financials. The inverse relationship between the U.S. dollar and gold has temporarily broken down with both posting gains today. Gold futures have soared to new all-time highs over $1,085 an ounce.
Asian markets were mixed. The Japanese NIKKEI was closed. The Hong Kong Hang Seng sank again with a 1.7% decline. This was the fifth decline in the last six sessions. The Chinese Shanghai index is still bouncing and posted a 1.2% gain. Meanwhile the brand new ChiNext NASDAQ-style market suffered a second day of profit taking with widespread selling on its third day of being open for business.
European markets continued to weaken. Financials led the decline. A worse than expected earnings report from UBS and more bailout news for the Royal Bank of Scotland (RBS) undermined investor sentiment. RBS now has the distinction of receiving the biggest bank bailout in global history with an additional $41.6 billion in government aid today. RBS agreed to sell a significant number of bank branches and its insurance unit in the deal. European stocks managed to trim their losses on stronger economic data in the U.S. but the French CAC-40 index lost 1.5% on the session. The German DAX fell 1.4%. The English FTSE dropped 1.3%.
Here at home in the U.S. the big story today was Warren Buffett's acquisition of Burlington Northern (BNI). Buffett's Berkshire Hathaway has consistently been buying railroad stocks for years. He started buying BNI over two years ago and owned almost 22% of the company. Berkshire also owns about 9.5 million shares of Union Pacific (UNP) and 1.9 million shares of Norfolk Southern (NSC). This morning Berkshire offered $100 a share for BNI making it Buffett's biggest acquisition yet at $34 billion.
Buffett called it an "all-in bet" on America. It's also a big bet on rising energy prices. The railroads can move one ton of goods over 400 miles on just one gallon of diesel. It takes the trucking industry over four times that much fuel. Warren Buffett also announced a stock split for Berkshire's class B shares. Warren's not a fan of stock splits but the 50-for-1 split will allow smaller investors to opt for an exchange of shares instead of selling for cash and creating a taxable event. At current prices a 50-for-1 stock split of Berkshire's class B shares reduces the price from $3,265 a share down toward $65.
BNI wasn't the only M&A news today. Last night Stanley Works and Black & Decker announced a merger. BDK will be the acquired company and its stock surged nearly 24% toward $59 a share on the news.
In economic news the Commerce Department said factory orders came in better than expected. Economists were looking for a 0.8% gain. September's orders rose 0.9%. Durable goods saw the biggest improvement and echoes the positive data we saw in the ISM figures on Monday.
Gold was making headlines with a new all-time high at more than $1,085 an ounce. Prices surged more than $30 on news that India has been buying huge amounts of gold. Back in September the IMF announced it would sell 403.3 tons of gold to strengthen its balance sheet and increase cash to improve its lending to struggling countries. It was just revealed that India bought almost half (200 metric tons of gold) during the IMF sale.
Currently the major U.S. averages are flirting with unchanged. The S&P 500 and the NASDAQ are temporarily in positive territory. Even the banks have recovered from their morning lows. Semiconductors are the worst performers today with the SOX index still down 1.5% on the session.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
Chart of the U.S. dollar ETF (UUP):
A glance at the OptionInvestor.com play list reveals that the GLD is hitting new highs over $106 a share. The TBT is up more than 2%. The IYT transport ETF is up sharply thanks to big gains in the railroad industry. Meanwhile RIMM is seeing a big bounce up more than 7% and nearing the $60 level.