U.S. equity markets started the week on a high note as hope for Federal Reserve action overshadowed weakness in the financial sector and continuing fears of inflation. The broad S&P 500 gained just 0.2% on the day while the Dow jumped by 0.3% and the Nasdaq surged by 0.5%. Commodity markets jumped back higher as well, with gold and oil finishing the day up 1.1% and 0.7%, respectively, thanks to an increasingly weak dollar which continued its slump against the world’s major currencies and nearly broke below the 80 yen mark on the day.
Today’s gains were the result of higher than expected home sales and hopes by investors that the Federal Reserve would step in with a massive bond buying campaign to help boost the markets. “The promise of QE2 has put downward pressure on the dollar and put downward pressure on interest rates,” said Hugh Johnson, chief investment officer of Hugh Johnson Advisors. That’s “about as good a combination as you could ask for for the U.S. economy and earnings,” he said. However, weakness remains in the financial sector which is still working through issues regarding their treatment of loans and foreclosure proceedings and were led lower by lending giant Bank of America, which fell by 2% in Monday trading.
One of the biggest gainers on the day was the Market Vectors Agribusiness ETF (MOO), which gained 1.6% in Monday trading. This was largely a result from strong days out of two of the fund’s top components, Monsanto and Mosaic, which rose by 2.7% and 3.1%, respectively, on the day. The two companies combine to make up over 12% of the fund’s total assets and much like the rest of the securities in the fund have seen their shares boosted by weak crop harvests and an anemic dollar, which has caused crop prices to shoot higher and send demand of agribusiness companies soaring [see holdings of MOO here].
One of the biggest losers in the ETFdb 60 was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which sank by 1.4% on the day. Today’s losses came as a result of a relatively stable day in trading which saw the S&P 500 stay within an 11 point range throughout the session. Once again, VXX experienced above average volume with trading coming in above 30 million shares, well over the average of 23 million. Despite the high volume, VXX continues to slide and has now fallen by 46.5% over the past 13 weeks and 62.9% since the start of the year [see technicals of VXX here].
Disclosure: No positions at time of writing.