Daily ETF Roundup: VXX Crumbles, EWJ Soars

by on October 5, 2010 | ETFs Mentioned:

Stock markets surged in Tuesday trading as all the major indexes jumped significantly higher. The Dow finished ahead by 1.8% while the S&P 500 jumped by 2.1% and the Nasdaq gained close to 2.4% on the day. Precious metals also had a banner day, as gold rose by close to $24/oz. and silver fielded an even more impressive trading session, rising by 3.9%. However, these gains were not limited to precious metals, as a variety of other commodities surged on the day as well. Corn and sugar both rose by more than 3.3% while oil continued its march higher, finishing the day just over $82.60/bbl.

This large gain was largely due to higher-than-expected growth in the service sector during September and a surprise rate cut in Japan, which helped to bolster stocks in international markets. These two data points helped to push many back into the markets and calm rising fears over a double-dip recession. “A lot folks who have cash on the sidelines are being drawn into the market because they don’t want to be left behind,” said Robert Pavlik chief market strategist at Banyan Partners LLC. “I think there’s potential to get to 1,200 by the end of the year.”

The ETFdb 60 Index climbed 15.37 points, or 1.4%, on heavy volume. Winners outnumbered losers by more than seven-to-one on the day.

One of the biggest winners on the day was the iShares MSCI Japan Index Fund (EWJ) which jumped by 3.2%. This came after the Bank of Japan cut its benchmark overnight call rate down to a range of zero to 0.1% from its previous target of 0.1%. The Bank also set up a $60 billion fund to buy a variety of assets ranging from government bonds to commercial paper and corporate securities in an attempt to restart the incredibly sluggish Japanese economy. “These steps are more aggressive than markets had expected. The BOJ’s decision is a surprise and will have an impact on currencies due to the message it delivers.” said Naomi Hasegawa, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities. This news helped to boost Japanese stocks, which were more than happy to see further commitment to a weaker yen in order to help maintain export competitiveness. Furthermore, yields on Japanese government bonds hit an incredible low of 0.4% on five year notes, suggesting that it would be extremely easy and cheap for businesses to lend in the country [see charts of EWJ 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 5.4% today. Not surprisingly, VXX was crushed by today’s strong market performance; the note posted extremely strong volume levels which came in more than 10 million shares higher than the average. These losses helped to push the fund down 1.9% on the week and continue the incredible losing streak for the fund. VXX is now down more than 50% so far in 2010; if equities continue to rise look for this trend to continue well into next year [see fundamentals of VXX here].

Disclosure: No positions at time of writing.