Posted November 05, 2008
The Dow Jones Industrial Average surged by 300 points because of a belief by investors the market is going to experience a year end rally. The dollar weakened against all major currencies except the Japanese yen.
On 05/November/2008 the US elected its first African-American president with notably socialistic views on the role of government. There had been predictions the stock market would take a dip if Barack Obama was elected, but investors had other things on their mind it seems in addition to the election.
The Dow Jones Industrial Average surged by 305.45 points as an election day rally drove the market up by 3.3%. The DJIA closed at 9,625.28. But it was not so much the election which was the catalyst as the belief the stock market is going to experience a year end rally. As a result investors began to move their money into the stock market to buy while the markets are low. In fact, the DJIA increase set a new record for an election day rally since 1980. The Wall Street market was closed on election day before 1980.
The DJIA is not the only market to experience increases. The Great Britain FTSE rose by 196.22 points to reach 4,639.50 while the Japanese NIKKEI rose a whopping 406.64 points and closed at 9,521.24.
What are investors thinking about the future of the Dow Jones Industrial Average? Some believe the euphoria over the end of the US presidential election coupled with the coming of the year end will fade and the market will see a temporary setback. But after the setback it is predicted there will be the start of a bull market run. That is because President-elect Obama will have to institute economic policies which deal with continuing to prop up the markets. The assessment of the US economy now predicts a 2009 recession but the fears of a recession are virtually gone.
It is interesting to note that the DJIA rise happened on the same day the US Commerce Department reported that factory orders fell much more than was expected. The orders fell by 2.5% in September which represents the biggest drops in orders since 1992. So the US economy is obviously still in a period of decline despite the prediction of a market bull run.
In the currency market, global currencies rallied against the US dollar. The euro rose to $1.2944; the British pound rose to $1.5922; the Canadian dollar rose to $.8666; the Australian dollar rose to $.6945; the Japanese yen rose to $.0099; the New Zealand dollar rose to $.6025; the Swiss franc rose to $.8584. The Japanese yen, on the other hand, fell to $.0099.
The Reserve Bank of Australia cut their interest rate by 75 basis points which surprised investors around the world. The expectation had been the cut would be 50 points. The RBA interest rate is now at 5.25% and the government predicts there could be additional reductions. The RBA is attempting to prevent further economic declines in a country that has been hard hit by the financial meltdown.
Around the world, global markets are seen as beginning to stabilize. Attention is being returned to the emerging markets to reassess where they stand now economically. Investors are indicating they believe the emerging markets are stronger and that is boosting their currencies.
What is interesting to note is that there is still so much uncertainty in the markets right now. It is like a house of cards and everyone is hoping the glue can be applied before the stack crumbles once again. So it is good the US election is over, because that was one drop of glue needed to continue the global economy repairs.