Concerns over the health of the global economy subsided as investors bought up equities across the board ahead of the Thanksgiving Holiday on Thursday. The Dow rose by 151 points while the S&P 500 and the Nasdaq jumped by 1.5% and 1.9%, respectively. While these moves offered a nice pre-holiday boost to many investors’ portfolios, they were nothing compared to moves in the commodity and bond markets. Although gold was relatively flat on the day, crude posted 3.5% gain to finish the session above the $84/bbl. mark while Treasury bonds suffered severe losses that sent yields surging across most maturity levels. The medium part of the curve experienced the biggest move as five, seven, and ten year Bonds saw their yields all jump by at least 0.14% on the day.
Equity markets rose today as investors shrugged off the tensions on the Korean peninsula as the two nations refrained from trading any more bullets and instead exchanged harsh rhetoric. This helped to temporarily defuse the situation leading many to believe that an all out war was likely to be avoided, at least for the time being. Closer to home, a surprisingly low jobless claims report also helped to boost the markets as new claims declined by 34,000 to 407,000, the lowest level since July 2008. This comes as economists predicted initial claims to fall to 435,000 suggesting that that the employment situation may finally be improving.
One of the biggest winners on the day was the iShares Dow Jones Transportation Index Fund (IYT) which gained 2.8% in Wednesday trading. Transports were boosted as investors jumped on the sector after the solid jobs data reignited speculation that the American consumer would come out and spend this holiday season. If this were to happen, it would likely boost demand for delivery services helping to send shares of FDX and UPS up by more than 2% on the day. Additionally, railroad operators such as Union Pacific and CSX also saw their shares rise by more than 2.5% on hopes that the economic environment was finally starting to turn around. “The flurry of U.S. data this morning suggests that households have started to pickup the baton of growth from businesses,” said Paul Dales, U.S. economist at Capital Economics. “Whether or not households will be able to shoulder the burden of growth on their own is another matter.” [see holdings of IYT here]
One of the biggest losers in the ETF world was the Vanguard Long-Term Bond Index Fund (BLV) which fell by 1.4% on the day. Today’s losses came as traders dumped the bonds they picked up yesterday when tensions were high in Korea in favor of riskier assets such as stocks and commodities. The solid data didn’t help this safe haven either as investors rethought the wisdom of holding onto these low yielding securities in light of an improved economic picture. “The data provided a ray of hope for those who are bullish on the economy and the flight-to-quality flows reversed,” said David Coard, head of fixed-income trading in New York at Williams Capital Group. Although the heaviest losses came in the medium duration securities, long term bonds– such as the 30-year– sank as well with yields on these bonds soaring by 0.09% on the day [see fundamentals of BLV here].
Disclosure: No positions at time of writing.