After sharp gains on Friday, U.S. equity markets fell back on a rocky day of trading that saw stocks dip to start the week, then surge in afternoon trading, only to fall back once again to finish the session. The Dow dipped by 0.4% while the Nasdaq and S&P 500 fell by 0.5% and 0.6%, respectively. As equities lost some of their appeal in late trading, many traders fled into the relative safety of U.S. Treasurys, which saw 10 year note yields fall by .09% and 2 year notes sink by .02% to yield 0.42%. Meanwhile, most commodity markets stayed relatively flat on the day with oil hanging on to the $76/bbl. mark and gold finishing the day just under $1,300 again.
Today’s losses were broad, with weakness coming in a variety of sectors. Among the hardest hit on the day was the financial sector, and health care names also plunged. Meanwhile, strength in pockets of the tech sector combined with a similar situation in the basic materials markets to help keep at least part of the markets afloat heading into Tuesday. A main driver on the upside was a flurry of deal news in a variety of sectors; Wal-Mart is looking to purchase a South African consumer goods distributor, Unilever agreed to buy Alberto Culver, and Southwest also stated its intentions to purchase AirTran. However, this potential deal boom was shrugged off as investors focused in on weakness in Europe’s banking sector ahead of the ECB’s planned liquidity drawdown later this week. “The amount of net cash drain or injection will give an indication of the liquidity health of banks and could have some impact on market sentiment,” said Orlando Green, assistant director of capital markets strategy at Credit Agricole CIB in London.
The ETFdb 60 Index dipped 1.56 points, as trading was light to kick off a week lacking for major data releases or earnings reports.
One of the biggest winners on the day was the Vanguard Long-Term Bond Index Fund (BLV), which rose by 1.2%. This came after traders fled to the safety of long-term U.S. Treasury bonds as a way to protect their investments from any economic storms in the near future. The yield on the 30-year bond declined to 3.71% on continued fears over the economic situation in the euro zone’s troubled members such as Portugal and Ireland. American economic worries also helped to continue the rally in bond markets; BLV has now gained 5.8% over the past 13 weeks. “Against the backdrop of a still-weak economy and a Fed that appears poised to intensify its asset purchase program, my guess is that the demand for Treasurys will remain fairly robust, despite the amount of supply hitting the market this week,” Kevin Giddis, president of fixed income capital markets at Morgan Keegan, wrote in a note to investors [see fundamentals of BLV here].
One of the biggest losers in the ETFdb 60 was the United States Natural Gas Fund (UNG), which fell by 2.9% on the day. Today’s sharp losses came as the threat of a powerful storm hitting the Gulf dissipated over the weekend, leaving supplies robust in the critical gas producing region. The timing didn’t help matters either; late August/September is usually one of the lowest demand points for the gas as it is too cool for air conditioner use and too warm for heating. This leaves the fuel dependent on supply issues to drive the price and with no major disruptions in sight, supplies look likely to remain robust heading into the fall. “Little to no threat potential [is] seen for the U.S. energy production infrastructure across the western and central Gulf” in the next week to 10 days, said Jim Rouiller, senior energy meteorologist at Planalytics [see technical analysis of UNG here].
Disclosure: No positions at time of writing.