After a rough start to Tuesday trading, equity markets managed to squeak by with small gains to finish the day. The tech heavy Nasdaq led the way with a gain of 0.3% while the Dow and S&P 500 finished slightly ahead. Commodity markets were also flat on the day as gold and oil both finished ahead by just 0.1% on the day. However, one exception to this rule was the cotton market where prices jumped by 3.9% on the day, another new record for the important resource. Meanwhile, in the currency markets, the U.S. dollar surged against most major currencies as the dollar index gained 0.8% and was fueled by sharp gains against the euro and the yen.
Today’s flat market was a result of weakness in the oil & gas sector and broad weakness in the industrial goods and utilities sectors. However, solid reports out of some of the biggest names in tech, such as Microsoft, and solid gains in the service and banking sector helped to balance out the losses in the more capital intensive industries. “I don’t think we’re getting any clear direction today,” said Andrew Fitzpatrick, director of investments at Hinsdale Associates. “Earnings have been generally pretty good, but there’s been a few companies that have disappointed, especially with their sales growth, and as a result stocks have stuck pretty rangebound today.”
The ETFdb 60 Index inched lower, losing 0.86 points, or 0.1%, on the day. Trading was relatively light, as investors held their ground ahead of several highly-anticipated reports due out later this week.
One of the biggest gainers on the day was the United States Natural Gas Fund (UNG) which jumped by 1.3% in Tuesday trading. Since November natural gas futures expire tomorrow, many traders have closed out their positions in order to avoid physical delivery of the heating and cooling fuel. Thanks to a huge decline in price for natural gas over the past few weeks, many were likely short the commodity and thus had to buy up futures in order to close their positions, pushing up prices and giving UNG a nice boost to finish out October. However, many are looking for a quick end to this trend, possibly as soon as Thursday when the Energy Department gives its weekly report on inventory levels. “This week’s storage report could well see the inventory deficit eliminated, sending storage on track to set a new record before the winter begins,” Biliana Pehlivanova, an analyst at Barclays Capital in New York, said in a report, potentially meaning that a short-rally could be in the cards for UNG [see technicals of UNG here].
One of the biggest losers in the ETFdb 60 was the Vanguard Long-Term Bond Index Fund (BLV), which fell by 1.2% on the day. Today’s losses came after investors sold off long-term Treasury bonds, helping to bump up ten and 30 year bonds to yield at 2.64% and 4.00%, respectively. Investors are growing increasingly uncertain over the Fed’s second round of easing, which some analysts have pegged at just $100 billion a month or about $1.2 trillion a year; others are expecting a far more robust easing campaign in the neighborhood of $4 trillion. Due to this extremely wide expectations gap, many investors have decided to sell off their long-term bond holdings now to avoid a large sell off if Bernanke’s plans are not as extensive as anticipated [see fundamentals of BLV here].
Disclosure: No positions at time of writing.