The recovery showed signs of falling into chaos on Thursday, with Treasury Secretary Geithner facing a firestorm in Washington as lawmakers called for his resignation and Dell reported a decline in profits of more than 50%. Elsewhere in the world, EU leaders (as expected) selected Belgian Premier Herman van Rompuy as the bloc’s first full-time president.
The ETFdb 60 Index, a benchmark measuring the performance of the universe of investable assets available through ETFs, dropped 9.58 points, or 0.9%, to close at 1,015.39. The day’s largest decliners featured a trio of small cap ETFs, as the iShares Russell 2000 Value Index Fund (IWN) shed 2.6%, the Russell 2000 Index Fund (IWM) lost 2.5%, and the Russell 2000 Growth Fund (IWO) shed 2.4%. Mid cap indexes lost about 2%, while S&P ETFs lost about 1.3%.
A broad analyst downgrade in the semiconductor sector weighed on tech stocks, and concerns about the sustainability of corporate earnings also spooked investors. Combined profits in the S&P 500 were down about 14% in the third quarter, the third straight quarterly decline. Those companies that did report strong earnings were boosted primarily by cost cuts, as opposed to growing revenue.
In an uncertain economic environment, the inverse relationship between equity prices and volatility ETFs has become as reliable as ever. The iPath S&P 500 VIX Short-Term Futures ETN (VXX) gained 2.5% on Thursday as expected volatility in coming months ramped up. The correlation between VXX and most equity ETFs has been strong and negative in recent months, making these volatility funds an attractive option for ultra-bears or those seeking portfolio insurance.
Disclosure: No positions at time of writing.