The week got off to a strong start on Monday, as investors cheered a surprise increase in home resales and news of several big deals around the world as an indication that the return to normalcy continues. Home resales increased 10.1% in October, far more than expected, as the appeal of a lucrative tax credit offset concerns about still rising unemployment. The Dow Jones Industrial Average closed at a 13 months high, driven higher in part by hopes that U.S. interest rates will remain low for the foreseeable future.
The ETFdb 60 Index, a benchmark measuring the performance of the universe of assets available through exchange-traded funds, gained 8.10 points, or 0.8%, to close at 1,021.46. The gain snapped a four-session losing streak for the benchmark during which it had shed 1.2%.
Despite news that China’s banking regulator told banks to comply with capital requirements or face sanctions, China ETFs turned in a strong performance on the day as investors continued to pour cash into risky equities. The iShares FTSE/Xinhua China 25 Index Fund (FXI) gained 2.2% for the day, while the more broad-based Claymore/AlphaShares China All-Cap ETF (YAO) gained 1.7%. The warning from the China Banking Regulatory Commission to banks was viewed by many as a sign that the government is increasingly concerned about risks to the financial system following a year of massive lending.
On the other side of the coin Monday was the iPath S&P 500 VIX Short-Term Futures ETN (VXX), which slid nearly 6% for the day. Volatility ETFs have exhibited a strong negative correlation to domestic and international equity funds in recent weeks, spiking on news cracks in the recovery and slumping when all seems well.
Disclosure: No positions at time of writing.