With a flood of data still waiting in the wings, traders returned to fretting over the sustainability of the current market rally. However, while futures on the Dow Jones Industrial Average (DJIA) are down 54 points at 9,803, or about 60 points below fair value, U.S. stocks have moved off their lows heading into the open. This spark of life was provided when Warren Buffett announced that Berkshire Hathaway (BRK) will acquire Burlington Northern Santa Fe (BNI) for $100 per share. The news overshadowed a report that Johnson & Johnson (JNJ) plans to slash up to 7% of its workforce as part of a restructuring. In currencies and commodities, the U.S. Dollar Index is up 0.55% at 76.70 in pre-market activity. Meanwhile, the December gold futures contract has rallied $6.30 to trade at $1,060.40 an ounce. Finally, crude oil for December delivery is off 88 cents at $77.25 per barrel in electronic trading. Headlining equities news this morning, Berkshire Hathaway (BRK) announced that it is paying $100 per share to acquire railroad firm Burlington Northern Santa Fe (BNI). Berkshire will also take on $10 billion of Burlington Northern debt, valuing the total deal at $44 billion. The company said the deal is its biggest acquisition ever. "Our country's future prosperity depends on its having an efficient and well-maintained rail system," Warren Buffett said in a press release. "Conversely, America must grow and prosper for railroads to do well." He added, "Most important of all, however, it's an all-in wager on the economic future of the United States. I love these bets."
Meanwhile, in earnings news, Johnson & Johnson (JNJ) said that it plans to take a fourth-quarter restructuring charge of about $1.2 billion as part of a cost-cutting program to reduce its global work force by 6% to 7%. The company's plans are expected to generate annualized, pre-tax cost savings of $1.4 billion to $1.7 billion by 2011, including $800 million to $900 million in 2010. "The associated savings will provide additional resources to invest in new growth platforms," Johnson & Johnson said.
Finally, Marvel Entertainment Inc. (MVL) reported that its third-quarter earnings fell to $20.4 million, or 26 cents per share, from $50.6 million, or 64 cents per share, in the same period a year ago. Sales declined to $106 million from $182 million. Marvel also said that it still expects its deal to be acquired by Walt Disney Co. (DIS) to close by the end of the year.
Earnings Preview
The earnings calendar is still packed, and includes American Tower Corp. (AMT), Energizer Holdings Inc. (ENR), Marathon Oil Corp. (MRO), Viacom Inc. (VIA), and Yamana Gold Inc. (AUY). Keep your browser at SchaeffersResearch.com throughout the day for more.
Economic Calendar
The Street will be graced with September factory orders and October auto sales on the economic front today, but the real fun begins tomorrow. Specifically, the Challenger, Christmas & Grey job cuts report for October, the October ADP employment report, the Institute for Supply Management services index for October, weekly U.S. petroleum supplies, and the Federal Open Market Committee's (FOMC) decision on monetary policy are on tap for Wednesday. On Thursday, preliminary third-quarter productivity will be joined by weekly initial jobless claims. We end the week with a bang on Friday, as September's wholesale inventories, September's consumer credit report, and the coup de grâce, October's nonfarm payrolls, unemployment rate, average work week, and hourly earnings.
Market Statistics
Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,610,838 call contracts traded on Monday, compared to 1,279,314 put contracts. The resultant single-session put/call ratio arrived at 0.79, while the 21-day moving average held at 0.59.
**The volume data shown above is from the Nasdaq and NYSE exchanges only. It does not include regional volume activity, which means that other daily volume quotes you see may be higher.**
Every morning, our research staff analyzes the prior day and the overnight markets, and monitors the morning wires to give you an accurate preview of the day to come. If you enjoyed today's edition of Opening View, sign up here for free daily delivery, straight to your inbox, before the opening bell.
Overseas Trading
Overseas trading is in pretty bad shape this morning, as only one of the 10 foreign indexes that we track is in positive territory. The cumulative average return on the collective stands at a loss of 1.63%. Most Asian markets ended down after a choppy session Tuesday, with Hong Kong stocks pulled lower by concern that the government may act to cool property prices. Chinese stocks again defied the weakness in regional markets, as resource stocks extended gains on higher commodity prices and brokerages gained on hopes of a strong demand for China Merchants Securities' initial public offering. Shares of Cheung Kong Holdings dropped 1.9% and Sino Land Co. fell 4.1%. However, shares of diversified Swire Pacific climbed 1.1% on news it was considering a listing for its property business. Sentiment toward Chinese lenders in Hong Kong was also dampened after the China Banking Regulatory Commission's chairman asked banks to keep their lending at a reasonable level in the fourth quarter. Industrial & Commercial Bank of China fell 1.8% and Bank of China lost 2.7%.
European shares fell after Australia kicked off a busy week for central bank interest rate decisions with its second hike in two months, while asset protection scheme updates from two British lenders placed the focus firmly back on the health of the banking sector. Companies that have led the advance since March were among the worst performers on Tuesday in Europe, with metal stocks such as BHP Billiton – down 3.6% – lower and banks such as HSBC Holdings – down 3.5% –also under pressure. The banking sector was grappling with news that Lloyds Banking Group, up 1%, will not participate in the U.K. government's asset protection scheme, and instead will raise additional private sector capital and pay a fee to the taxpayer for the implicit protection provided to date. However, Royal Bank of Scotland, down 6.5%, will participate in the asset protection scheme under revised terms that improve incentives and deliver better risk-sharing with the private sector. German carmaker BMW is down 6.5% after the firm reported third-quarter net profit dropped 74%, to 78 million euros, from the same period a year ago. Revenue fell by 6.6 %, to 11.76 billion euros, and BMW said "it cannot be assumed that an enduring recovery has taken hold."
The U.S. Dollar Index (DX/Y) slipped 0.11% to 76.29 on Monday. The greenback gave back some of its recent gains after reports showed strength in the U.S. manufacturing and housing sectors, decreasing the dollar's safe-haven appeal. The U.S. currency started the session on the wrong foot, heading lower in trading on Monday, after strong data from purchasing managers in Asia and Europe. However, overseas currency trading could be subdued this week, as traders await announcements on monetary policy from several central banks. Against this backdrop, the euro rose to $1.4769, while the dollar rose to 90.26 yen.
The futures contract on the 30-year bond (US/1 – 119'26) slipped 11/32 on Monday. Treasurys were pressured lower, sending yields higher, after manufacturing data lifted investor confidence that the economy was rebounding. What's more, yields rose quickly after the data was released, but pared gains after stocks turned mixed. Traders expect bond activity to remain mixed on low volume ahead of this week's Federal Open Market Committee meeting on U.S. monetary policy.
Commodity Corner
Crude futures inched higher on Monday, as demand-related optimism increased in the wake of upbeat manufacturing data from across the globe. More specifically, black gold got a boost amid reports indicating that the U.S. manufacturing sector expanded for the third straight month in October, as well as news that China's manufacturing industry remained strong for the seventh consecutive month. In addition, crude ticked higher after a Reuters survey showed that output from the Organization of the Petroleum Exporting Countries (OPEC) is starting to decline. Against this backdrop, December-dated crude added $1.13, or 1.47%, to finish at $78.13 per barrel.
Elsewhere in the commodities pits, gold futures also powered higher on the heels of encouraging economic data. The plethora of reports weighed on the U.S. dollar, which turned lower against most of its foreign counterparts, bolstering gold's appeal as a currency hedge. Furthermore, news that CIT Group Inc. filed for Chapter 11 bankruptcy protection increased the precious metal's allure as a safe-haven investment. By the close, gold for December delivery advanced $13.60, or 1.31%, to settle at $1,054 an ounce.
Unusual Put and Call Activity:
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