U.S. equity markets posted solid gains on Election Day, as investors eagerly awaited the results from the 2010 midterm races. The Dow and S&P 500 rose by 0.6% and 0.8%, respectively, while the Nasdaq managed to post more robust gains of 1.2% on the day. Commodities again finished the day up as oil jumped by $1.1/bbl., gold rose by $6/oz. and soft commodities such as sugar and cotton continued their meteoric rise.
Today’s gains came as the dollar continued its downward spiral ahead of tomorrow’s important Federal Reserve meeting in Washington. Minor M&A activity also helped to boost the markets, as 24 of the 30 Dow components finished the day in positive territory as investors made their last bets on the magnitude of QE and awaited the election results due out later tonight. “We should have a clearer picture tomorrow morning of the political leadership of the House and the Senate, thus allowing those bodies to consider tax reform and a couple of other important issues during its lame- duck session and ahead of year-end,” wrote Fred Dickson, chief investment strategist at Davidson Cos.
The ETFdb 60 Index, a benchmark measuring the performance of asset classes available through ETFs, climbed 8.73 points, or 0.8%. Winners outnumbered losers by nine-to-one, but volume was light once again ahead of elections and a key Fed meeting.
One of the biggest winners on the day was the Vanguard European ETF (VGK), which jumped by 2.1% in Tuesday trading. VGK, which is heavy in British equities, was boosted by the third quarter earnings report from BP, which showed a $1.8 billion profit for the period, a massive increase compared to its spill-induced loss of $17 billion in the second quarter. However, many analysts in Europe remain transfixed by the Fed’s possible moves in tomorrow’s session which could help to sway European markets during Wednesday’s trading session “Expectations of what the Fed is going to deliver tomorrow, that is what everyone is looking at here,” said Christian Tegllund Blaabjerg, chief equity strategist at Saxo Bank, in Denmark. “In terms of earnings, we are past that point where earnings are going to drive equities much higher. It’s been solid earnings all over.” [see holdings of VGK here].
One of the few losers in the ETFdb 60 was the PowerShares DB USD Index Bullish Fund (UUP), which sank by 0.7% on the day. Today’s losses were largely the result of a surprise rate hike by the Reserve Bank of Australia, which boosted its rates by 25 basis points up to 4.75%. This move sent the Australian dollar up to parity with the greenback and boosted demand for other global currencies such as the euro, which gained close to 1% against the U.S. dollar as well. “We’re entering uncharted territory, but the Aussie has staying power up here,” said Carl Hammer, chief currency strategist at SEB in Stockholm. “We see it trade above parity in the mid term, as there’s also the issue of general dollar selling.” [see more on UUP's fact sheet]
Disclosure: Eric is long VGK.