After an initial sell-off, equity markets surged to finish the week sharply higher despite warnings from technology bellwether Intel and a bearish outlook from Fed Chair Ben Bernanke. The Dow jumped by 160 points, while the S&P 500 and the Nasdaq posted similarly robust gains; both finished the day up 1.7%. This jump helped to boost oil prices by more than $2/bbl, putting an end to crude’s recent skid. As equity markets regained some of their recent losses, bond markets suffered; the 10 year yield rose by 0.17% while the two year note also surged higher to finish the day yielding 0.56%.
Despite a warning from Intel that sales will fall short of earlier forecasts, investors were reassured by the Fed’s pledge to increase its quantitative easing program and buy up long-term bonds and other assets in hopes of spurring the economy back to strong levels of growth. “Regardless of the risks of deflation, the FOMC will do all it can to ensure continuation of the economic recovery,” said Fed Chair Ben Bernanke, who added that the Fed would continue “to evaluate whether additional monetary easing would be beneficial” and would act “if it proves necessary, especially if the outlook were to deteriorate significantly.”
The ETFdb 60 Index, a benchmark measuring the performance of asset classes available through ETFs, climbed higher by 9.67, or 1.0%, in heavy Friday trading. Winners outnumbered losers by nearly three-to-one, as most equity components finished the week on a positive note.
One of the biggest gainers on the day was the iShares MSCI Brazil Index Fund (EWZ), which surged higher by 3.9% in today’s trading. This boost came after huge spikes in prices for some of the country’s top exports, including oil, sugar and coffee, all of which jumped higher by more than 2% today. Sugar climbed by nearly 4%. The commodity-intensive Brazilian economy was bolstered by these higher prices as well as bargain buying by investors who had seen one of the worst months for emerging markets in recent memory; the fund has fallen by 3.7% over the past two weeks and has sunk by close to 8% so far in 2010 [see holdings of EWZ here].
One of the biggest losers in the ETFdb 60 was the United States Natural Gas Fund (UNG), which tumbled by 3.3% to close out the week. This tumble continued the downward trend for natural gas which fell to an 11-month low on speculation that decreased economic activity will reduce demand for the important commodity. The fund wasn’t helped by a report from the Commerce Department showing that U.S. GDP grew at just 1.6% compared to a 2.4% estimate earlier this month. “There is no constructive news in the market right now,” said Teri Viswanath, a director of commodities research at Credit Suisse Securities USA in Houston. “People take a look at the level of the injections given the heat that we have, and they feel that there is going to be more-than-adequate storage to repair the balance.” [see fundamentals of UNG here]
Disclosure: Eric is long EWZ.