Earnings season surprises continued on Thursday, with strong reports from Travelers, 3M, and McDonald’s contributing to a rally in U.S. equity markets. The Dow reclaimed the 10,000 level that it crossed just last week for the first time in a year. The ETFdb 60 Index, a benchmark designed to measure the performance of a variety of asset classes, gained 4.45, or 0.4%, to close at 1,023.91. Winners outnumbered losers by nearly four-to-one in relatively heavy trading.
The biggest winner on Thursday was the financial sector. The Financial Select Sector SPDR Fund (XLF) jumped more than 3%, driven by big gains for components Travelers (7.7%), PNC Financial (12.7%), and Fifth Third (6.8%). XLF is now up more than 22% on the year, and is now in the black over the last year. SunTrust also gave an unexpectedly rosy quarterly report, giving a boost to regional banks. The SPDR KBW Regional Banking ETF (KRE) jumped 5.4%, while the iShares Dow Jones U.S. Regional Banks Index Fund (IAT) gained 4.5%.
Thursday’s rally sent volatility indexes plummeting, as the iPath S&P 500 VIX Short-Term Futures ETN (VXX) fell more than 4%. VXX is tied to an index that invests in one-month and two-month futures on the VIX index, a measure of expected volatility in the S&P 500. VXX has fallen sharply in recent months as a sense of normalcy has returned to domestic and international equity markets. Over the last year, the correlation between VXX and SPY is -0.8, evidence of the strong inverse relationship between volatility and the equity markets.