This week took us into record territory once again. Kim Jong-Il, step aside, our markets have work to do!
1.
The Dow does it again.
What happened?
Surpassing and closing above the 12,000 mark for the first time in history, the Dow Jones Industrials Average continued to act on positive market news, cheap oil prices, and other influential events.
What does this mean for your portfolio?
Once again, the market seems to regularly tear into uncharted territory. What spurred it on this week? Well, clearly the brunt of the upward force came from a week that saw the positive earnings for some of the Dow's biggest names, which will be discussed later. With the recent performance, I will refrain from making any more predictions on the future of the Dow and just let it run its course.
2.
CME conquers CBOT.
What happened?
For those unfamiliar with commodities and futures trading, this might sound more like the results of a new video game. But on Oct. 17, the Chicago Mercantile Exchange (NYSE:CME) announced an $8 billion deal for the Chicago Board of Trade (NYSE:BOT) to merge the two companies.
What does this mean for your portfolio?
This mega-Midway transaction, one that emanates from the earliest histories of American securities trading, creates a stronger front against the ever-expanding NYSE (NYSE:NYX). The NYSE recently acquired the Chicago-based Archipelago exchange in 2005 and now has its sights set on some of the European exchanges. Similarly, Nasdaq is looking to acquire the London Stock Exchange, in which it already holds over 25% of the issued shares, despite calls against it from within the LSE. All this consolidation of markets could mean renewed efficiencies for members and investors. In the case of the Merc, everyone will benefit from the combined floor space between the two exchanges. However, it's equally likely that in this case, members will see increased trading fees, considering the exchange's dominant control of Treasury futures and other traded contracts.
3.
Are the large caps back?
What happened?
Record-breaking numbers for the Dow were largely the result of oil prices, positive third-quarter numbers for blue-chip companies, and satisfactory numbers on current inflation measures. No matter how you slice it, companies with large capitalizations are floating above their smaller peers when you compare the year-to-date returns from the S&P 500 vs. the Russell 2000.
What does this mean for your portfolio?
Despite poor quarterly performance from some giants, the Dow surged onward on other more impressive corporate performance. In general, with the expectation of a slowing economy, large caps may be the place to be. Not since the late '90s have large caps beat small caps in terms of outright performance, and now might be the perfect time to align your money with some megacaps. Should we continue to see shrinking economic growth, I believe there will be a snowball effect with money into the large caps.
4. OPEC continues to waffle on output reduction.
What happened?
For nearly three weeks now, interested parties have been examining whether OPEC will uphold collective reductions in crude output to the tune of 1.2 million barrels a day. According to Bloomberg, OPEC's largest oil producer, Saudi Arabia, endorsed large oil cutbacks and has agreed to cut output by 380,000 barrels a day.
What does this mean for your portfolio?
After this week's announcement that U.S. inventories were larger than originally anticipated and a subsequent fall in price to around $58, the oil cartel is frantic to boost the price back up above the $60 threshold. And this cut, should they get it organized, probably will do exactly that. But it's tough to say where the fair price of this commodity should be. As American stockpiles grow larger and deep oil reserves are found (of which there are plenty), I will remain convinced that oil will probably not become a ridiculously excessively expensive item again. The question remains, however, at what point will nations outside of OPEC decide they no longer want to be subject to OPEC's whims? At what point will they decide to develop alternative energies?
5. What are you getting paid?
What happened?
According to Bloomberg, for the year 2005, the average salary for a Wall Street employee was nearly $290,000, 5.1 times the average amount for a typical New York City employee. This inflated figure can largely be attributed to a strong year for investment banking and trading arms of the large securities firms.
What does this mean for your portfolio?
Believe me, I'm the first person to support people being rewarded for their good performance, especially like the show put on byMerrill Lynch (NYSE:MER) last quarter. However, if you've ever wondered where your selling costs and administrative fees go to, then look no further. Don't forget that in all probability, the few top managers are likely spiking this figure.
6.
Cheap drugs south of Canada.
What happened?
As expected, Wal-Mart (NYSE:WMT) decided to expand its cheap prescription prices for generic drugs. The program, which was initiated in Florida, will progress on to 14 other states, including Texas and New York. In sum, the program includes over 140 prescription drugs.
What does this mean for your portfolio?
The program is bound to increase same-store sales for the retail stalwart and put competitors in a tough spot. But in general, Wal-Mart just doesn't have much room to grow in this country. With recent setbacks in Germany and other foreign markets, the company needs to look for promising growth opportunities abroad. The recent rumors surrounding Wal-Mart's intention to purchase China's Trust-Mart is definitely a good starting place. According to BusinessWeek, estimates put China's retail market growing at $80 billion per year, a ludicrous number despite its basis in reality. Wal-Mart would just be getting a small piece of that action with this deal, as the industry is highly fragmented and localized. But it's a start nonetheless, and it's bound to add bottom-line value to the company. Whether Wal-Mart can steal a large share of this immense market remains to be seen, but I think it's a gamble worth betting on.
7.
Usher in clean diesels.
What happened?
This past week, new federal regulations that mandate cleaner diesel fuel for vehicles took effect, prompting a possible resurgence for various models. The new fuel regulations reduce sulfur content by roughly 97%, drastically improving emissions for diesel vehicles.
What does this mean for your portfolio?
Our concept of what the diesel engine is -- or was -- is about to drastically change. These new diesels combine the emission standards of unleaded fuels, with the gas efficiency of the diesel engine. In fact, figures I've seen so far indicate that these new vehicles will be even more green-friendly than the hybrids of today, while maintaining powerful engines. I assume that several companies are eagerly taking note of this change, and I know that Mercedes Benz under Daimler Chrysler (NYSE:DCX) has jumped on the bandwagon already with a new diesel for the States, and Jeep might soon be doing the same. Whether or not you think this is an appropriate action to take to help heal the environment, car companies might just have found a way to put themselves back into growth territory.
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Nick Kapur owns shares of Wal-Mart. The NYSE Group is a Motley Fool Rule Breakers pick. Wal-Mart is a Motley Fool Inside Value recommendation. The Motley Fool has a disclosure policy.
