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U.S. Markets Enjoy Election Day Rally

5 November 2008 - Markets - Editor

Monday saw U.S. stocks end the day virtually flat, presumably in anticipation of the Tuesday presidential elections. However, on Tuesday, before the outcome of the elections were confirmed, Wall Street rallied quite impressively with the Dow Jones industrial average rising 305.45 points, or 3.28 percent, to close at 9,625.28. The Standard & Poor’s 500 gained 4.08 percent, or 39.45 points to close at 1,005.75, being the first time it has closed above 1,000 since 13 October. The Nasdaq composite index rose 53.79 points, or 3.12 percent, to close at 1,780.12, marking the sixth trading day in a row that the index has risen.

Some analysts are of the opinion that the market rally is not necessarily related to the presidential elections, but is more likely as a result of the continued coordinated interest cuts worldwide, along with further thawing of the credit market freeze and a growing resilience in the markets when dealing with the constant stream of bad economic news. This growing resilience is reflected in the fact that, despite two negative manufacturing reports in as many days, U.S. markets did not react negatively. On Monday a report revealed that the October index of manufacturing activity in the United States, as measured by the Institute for Supply Management, dropped to 38.9 from September’s reading of 43.5, being the worst result since September 1982. Then on Tuesday, the U.S. government reported that new orders for manufactured goods dropped by $11.2 billion, or 2.5 percent, in September, following a 4.3 decrease in August.

Trading volumes remain light at stock exchanges, but the intense volatility experienced in recent weeks appears to have calmed. Also, Tuesday’s rally was broad-based, with all industry sectors in the Standard & Poor’s 500 index rising and energy stocks in the lead. Of the Dow’s thirty blue-chip stocks, Verizon Communications, General Electric and Caterpillar proved to be the strongest performers. Other highlights of the day were the easing of interbank and corporate borrowing rates, boosting hopes that the measures taken to shore up credit markets are having a positive effect. Moreover, strong earnings from MasterCard, which saw shares jumping by 18.3 percent, are an indication of improved consumer spending.

Taking all these factors into account, it would appear that investors are starting to look ahead to 2009 on a more positive note and with newly elected U.S. president, Barack Obama, taking up office in January, the new year promises to be an interesting one.

 


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