Stocks Plunge on Dubai News, U.S. Observes Thanksgiving

On Friday stocks sold off as investors unloaded their positions ahead of the the weekend. The catalyst which precipitated this sell off was Dubai World’s trouble restructuring their debt. Dubai World, the most indebted of Dubai’s state-sponsored companies, is seen as a barometer for the health of the financial nexus.
The company currently owes $60 billion, $22 billion of which must be refinanced by 2011. The fact that Dubai World is struggling with their existing obligations led many to question how other, less solvent, emerging market companies will fare. Since March emerging markets have enjoyed some of the largest gains as the global economy recovers from the worst financial crisis since the great depression.
From our perspective, the current rally is under pressure as investors struggle for direction. Leadership has narrowed considerably in recent weeks as the major averages edge higher on lighter volume. It is also worrisome to see the small cap Russell 2000 index continue to woefully underperform its peers. The one saving grace has been the weak dollar. This column has repeatedly mentioned the inverse relationship between the US dollar and dollar denominated assets (i.e. stocks and commodities). This relationship remains critical as this rally continues.