U.S. markets plunged across the board, as rate hike fears in Asia compounded with Irish sovereign debt issues to spook American investors. The Dow and S&P 500 both tumbled by 1.6% on the day, while the the tech heavy Nasdaq was especially hard hit and slid by 1.8%. Commodity markets experienced yet another down session as gold fell by more than 2% and oil sank by 3% on the day. These losses helped to push many traders into the bond market as T-bill prices regained much of the ground lost in Monday trading, which also boosted the fortunes of the U.S. dollar. The greenback showed strength against many rival currencies, including large gains against the pound and euro.
Today’s big news came out of Asia, where a 25 basis point rate hike by the South Korean central bank sent fears into the market as many traders worried that China would also soon raise its rates in order to curb inflationary pressures on its economy. Since many see China as one of the key drivers of growth in the world economy, speculation over this move and a possible slowdown in the country sent many running for the market’s exits. “People look at China as a consumer of goods, a source for exports, so the ripple effect with trying to deliberately slow the economy, that’s the fear,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald. Meanwhile, ongoing speculation in Europe that the Irish would need a bailout in order to recover from a deteriorating fiscal situation also weighed on the markets. The sell off came despite Irish rejection of a bailout and conflicting rumors which suggested that European officials were ready to offer the struggling nation an aid package worth well over $100 billion.
The ETFdb 60 Index sank 15.12 points, or 1.4%, as only eight components advanced on the day. Trading topped 1 billion shares, the highest level in several weeks.
One of the best performing ETFs on the day was the Vanguard Long-Term Bond Index Fund (BLV), which gained 1.5%. Today’s gains came after investors fled the stock and commodity markets and piled into long-term bonds as a refuge from the growing storm in both Asia and Europe. Yields on 20 year bonds plunged by 9 basis points while the 30 year bond saw yields drop from 4.38% to 4.26%, helping to erase much of yesterday’s surge in yields in long-term sovereign debt. Despite today’s gains, BLV is still down 2.2% over the past week and has plunged by 5.8% over the past quarter [see holdings of BLV here].
One of the biggest losers in the ETFdb 60 was the iPath DJ-UBS Copper ETN (JJC), which plunged by 4.8% on the day. Today’s drop in the copper markets was the largest in four months and came as fears over a Chinese slowdown combined with hope that a strike at a major mining facility in Chile may be ending soon, further adding to the supply. The dollar’s strengthening didn’t help matters either, as the greenback’s rigidity in the open markets helped to limit demand for commodities. Although the red metal has seen its price skyrocket over the long term, it is experiencing a rough patch as of late; JJC is now down 6.2% over the past week and down 4.2% over the past month [see more on JJC's Fact Sheet].
Disclosure: No positions at time of writing.