U.S. equity markets rose for the second straight day as the Dow and Nasdaq posted 1% gains and the S&P 500 ended higher by 0.8% to finish the week above the 1,100 mark. Two solid days in a row reignited traders’ demand for risky securities which sent gold down more than $7/oz. and pushed up the benchmark 10 Year T-Bond yield to just under 3.00%. Today’s boost came after positive news from two American bellwethers; GE hiked its quarterly dividend by 20% which helped to alleviate fears over its capital division while Verizon upped its sentiment for the rest of 2010 after beating the Street’s earnings estimates but slipping on revenues. These reports helped to push up both of the Dow components by more than 3.5% on the day. “Expectations for a double-dip have passed somewhat. When you start looking at the robust earnings, (it’s clear) we’re going to have continued growth,” said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut. In addition to U.S. earnings season, European bank stress tests weighed on the markets; only 9 of the 91 banks failed the test leaving many to wonder if the program was too easy for most banks and if a more rigorous test would be needed to truly test the health of the European banking system. “The stress tests do not seem that stressful and it is looking more like a political whitewash rather than a genuine attempt to reassure financial markets that euro zone banks have balance sheets that could really withstand sovereign risk shocks,” said Neil MacKinnon, global macro strategist at VTB Capital.
One of the biggest winners on the day was the iShares Russell 2000 Growth Fund (IWO) which jumped higher by 2.7%. This jump came as investors returned to equities and bought up the most volatile market segment; small cap growth equities, on continued solid earnings reports in a variety of sectors. Of particular concern to IWO shareholders are the results of health care companies since this sector makes up 21.1% of the fund’s total holdings, by far the largest single weighting. Eli Lilly beat estimates by 12 cents a share helping to set the tone for some of the smaller names in the sector such as the $1.2 billion market cap Immucor which surged higher by 6.6% in today’s trading, giving a nice boost to the rest of the small cap health care sector. With continued weakness in many of the top health care names and growing drug portfolios in many small caps, some investors are growing increasingly hopeful that a wave of acquisitions is right around the corner as Big Pharma looks to beef up weak product pipelines by bidding for smaller companies which could help to boost small cap growth funds going forward [see more holdings of IWO here].
One of the biggest losers in the ETFdb 60 was the United States Natural Gas Fund (UNG) which fell by 1.3% on the day. The fund sank on extremely light volume which was less than 50% of the average volume of 26.5 million shares and news that tropical storm Bonnie was likely to cross over Florida and lose some of its power before heading into the Gulf of Mexico. This report left many traders less fearful that the storm would take a large part of the Gulf’s production offline for an extended period of time, sending supplies higher and prices lower. Tropical Storm Bonnie “is headed to production areas but it doesn’t look like it’s going to be a powerful deal,” said Jim Ritterbusch, president of oil advisory and trading firm Ritterbusch & Associates in Galena, Ill [see charts of UNG here].
Disclosure: No positions at time of writing.