American equity markets slumped in a post-Thanksgiving Holiday shortened trading session as renewed fears over the Spanish debt situation and concerns over a Chinese slowdown sank the markets. The Dow and S&P 500 both slid by 0.8% while the Nasdaq only fell by 0.3% as weakness in the banking sector helped to push the tech-heavy Nasdaq ahead of its peers. Although early reports of Black Friday retail sales were solid, traders shrugged off this optimistic report and instead focused in on the debt contagion in Europe. The Spanish Prime Minister tried to soothe investor fears by saying that the country was ‘absolutely’ not going to seek an EU bailout but investors didn’t buy it as Spanish and Portuguese yields continued their march higher and the euro lost over one cent against the greenback. “Besides being one of the larger economies over there, it’s a renewal of contagion worries and … it just puts further stress on the EU,” said Bernie Williams, vice president of private investment management at USAA Investment Management.
One of the biggest ETF losers on the day was the iShares FTSE/Xinhua China 25 Index Fund (FXI) which fell by 2.3%. These losses came after continued speculation that the Chinese government would hike borrowing costs in an attempt to curb loan growth and stop the rising tide of inflation. While a higher interest rate would likely help the country fight inflation, it will undoubtedly reduce the country’s white-hot growth rate, potentially hammering stocks. As these fears have mounted in recent weeks FXI has suffered; the fund is now down 6.4% over the past two weeks alone [see more fundamentals of FXI here].
One of the biggest gainers in the ETFdb 60 was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which soared by 6% in the shortened session. Traders bought up this ETN which tracks the fear index as concerns over a global slowdown outweighed any optimism over solid retail sales figures. Despite the early close of the markets, the fund traded more than double its daily average volume demonstrating just how great the demand was for this fund in Friday trading. “There’s a lot of uncertainty about whether the current facilities will be able to help out Spain in an emergency,” said Elwin de Groot, a senior market economist at Rabobank Groep in Utrecht, Netherlands, suggesting that investors are growing increasingly worried over the debt crisis in Europe and its impact on world markets [see technicals of VXX here].
Disclosure: No positions at time of writing.