Although markets started the day on a high note, stocks slumped in afternoon trading and finished the session down sharply. The Dow and Nasdaq both finished lower by close to 0.55% while the broad S&P 500 dropped by 0.8%. Meanwhile, commodity markets had an extremely volatile day as gold surged up to $1,424 in early afternoon trading, only to fall sharply to end the day below the $1,390/oz. mark, a loss of 1% from its open price. Oil experienced a similar situation as the commodity fell by $1.2/bbl. with virtually all of the losses coming in the final hours of trading.
Today’s sharp losses once again came at the hands of the financial sector, which helped to sink market confidence in the final hours of trading. Of the six biggest banks in the S&P 500, all were down at least 1%, while Wells Fargo and Citigroup both retreated by at least 3.1% in Tuesday’s session. Today’s plunge in the financial sector came after a report from the FDIC stated that a new proposal would require large banks to pay more into the fund that covers the costs of failures across the nation. Bank of America, JPMorgan Chase and Citigroup combined would pay about $1 billion more annually in assessments under the new liabilities-based system, according to industry estimates. This type of cost increase will likely cause large banks to consider what business changes they can make to lessen this cost, said Jim Chessen, chief economist at the American Bankers Association. “The costs are so large it drives business decisions.” The final ruling on the issue is expected in the first quarter of 2011, and if passed will likely hit banks that rely on funding from sources besides deposits the hardest, potentially causing a huge shift in the banking sector.
The ETFdb 60 Index sank 9.45 points, or 0.8%, as only a handful of components managed to finish the day in positive territory.
One of the biggest losers on the day was the Market Vectors Gold Miners ETF (GDX), which sank by 3.4%. Most gold miners sunk along with the price of gold in late trading on Tuesday, as investors moved back into the U.S. dollar. “We’ve seen the dollar benefit from risk-off,” said Andrew Busch, a global currency strategist at Bank of Montreal in Chicago. “That 10-year Treasury auction was weak. Bonds are selling off, equities are selling off and the dollar is strengthening.” This news helped to push a variety of miners down sharply, including major GDX component El Dorado Gold, which sank by more than 5.4% [see holdings of GDX here].
One of the biggest gainers in the ETFdb 60 was the United States Natural Gas Fund (UNG), which surged by 2.5% in Tuesday trading. UNG continued its recent rally in today’s session; the futures-based commodity fund is now up by more than 9% over the past week alone. This increase comes thanks to more predictions of cooler weather across much of the country, including temperatures of 22 degrees Fahrenheit in Chicago and 37 degrees in New York City next week. “Weather is turning cold, so people start to get a little bit jittery and gas prices go up,” said Cameron Horwitz, an analyst in Houston at Canaccord Genuity Inc. “Weather is probably the main driver behind the price move recently.” [see more fundamentals of UNG here]
Disclosure: No positions at time of writing.