American equity markets plunged across the board in Tuesday trading, as weak earnings combined with a Chinese rate hike to sink stocks. The S&P 500 plunged by 1.6% on the day while the Nasdaq and Dow suffered losses of 1.8% and 1.5%, respectively. Precious metals also tumbled as gold lost close to $40/oz. and finished the day at $1,334, while silver sank 4.4%. Oil markets were also hard hit as WTI crude plunged more than $3.6/bbl. to finish the day under the $80 mark. Thanks to this harsh environment, investors bought up U.S. Treasury bonds and the dollar in general, which helped to push the dollar index up 1.7% in Tuesday trading.
Today’s losses came at the hands of earnings disappointments from tech behemoths Apple and IBM and a quarterly loss from banking giant Bank of America. These three disappointments sank the market, along with a surprise rate hike from China that sent commodity markets reeling throughout the day as traders grew increasingly worried that the world’s most populous country is taking steps to slow down its economy. The rate hike in China is the first since before the financial crisis began in late 2008 and comes on the country’s benchmark one-year loan, which was raised by 0.25% to 5.56%. The one-year rate paid on deposits was also raised by 25 basis points, up to 2.5%. This news also propelled the dollar skyward which did not help the weakness already present in the equity markets thanks to the disappointing earnings, leading the major indexes to one of their worst days in over two months.
The ETFdb 60 Index, a benchmark measuring the performance of asset classes available through ETFs, sunk by 12.78 points, or 1.2%. Aggregate trading volume for index components topped one billion shares, as losers outnumbered winners by nearly three-to-one.
One of the biggest gainers on the day was the PowerShares DB US Dollar Index Fund (UUP), which surged higher by 1.7% on the day. While today’s gains matched the U.S. dollar index, a few major currencies stood out as contributors for the dollar’s Tuesday surge. The Australian dollar sank by over two cents, or roughly 2%, against the greenback while the euro and pound sank by 1.4% and 1.1% versus the U.S. dollar, respectively. Demand for UUP was also incredibly strong today; volume was nearly three times the daily average of 3.5 million shares. Today’s gains also helped to reverse some of the fund’s recent losses which had reached into the 7% range over the past 13 weeks before today [see more fundamentals of UUP here].
One of the biggest losers in the ETFdb 60 was the Market Vectors Gold Miners ETF (GDX), which plummeted by 4.6%. Gold reversed its recent upward trend today as the yellow metal sank close to $40/oz. on a stronger dollar and concerns over declining levels of demand in China. GDX which acts as a leveraged play on gold by tracking the NYSE Arca Gold Miners Index, which consists of 32 gold mining firms from across the world. Despite today’s loss, GDX is still up close to 20% on the year. All of the fund’s top three holdings–which make up more than 33% of the fund–were down more than 4.1% on the day, and could display further weakness if the price of gold fails to recover from this setback [see more on GDX's holdings here].
Disclosure: No positions at time of writing.