After slumping for much of the day, U.S. equity markets surged in the final two hours of trading to finish with modest gains. Both the Nasdaq and S&P 500 posted gains of more than 1%, while the Dow jumped by 0.7%. Oil and gold also rose, as both of these key commodities climbed by roughly 0.8% on the day. Today’s gains came despite weakness in the housing markets; housing starts hit an eighth-month low as the federal tax credit for buyers expired. Additionally, investors digested a poor earnings report out of blue chip IBM, which fell by about 4% on the day due to a 12% decline in second-quarter services bookings from the year-earlier period.
These negatives were canceled out by a report that the Federal Reserve was preparing to announce an effort to force banks to lend more. Essentially, the bank would stop paying 0.25% interest on the cash that private banks hold with the Reserve, forcing them to lend instead of stashing cash in the Fed.
The ETFdb 60 Index climbed 8.69 points, or 0.9%, as only eight components finished the day in negative territory.
One of the biggest winners on the day was the iShares MSCI Brazil Index Fund (EWZ), which soared by 3.3%. Yields on Brazil’s interest-rate futures contracts fell after a drop in consumer prices, which may temper the pace of interest rate hikes in the near future (especially given the central bank’s policy meeting tomorrow). EWZ also saw a boost from an uptick in many commodity prices, including oil (up more than 60 cents) and soybeans (up more than 1%). This fund is very resource-price dependent; it has just over half of its assets in the industrial materials and energy sectors, so strong commodity prices tend to boost EWZ [see more holdings of EWZ here].
One of the biggest losers on the day was the iPath S&P 500 VIX Short-Term Futures ETN (VXX), which fell by 5.1%. This sharp loss came after investors regained their appetite for risk later in the trading day, as the Federal Reserve news and positive expectations for Apple boosted market sentiment. The tech giant hinted to the markets that it may beat estimates, and then proceeded to do just that; AAPL beat Street estimates on both earnings and revenues, climbing higher in after-hours trading. Although VXX has gained almost 30% over the past three months, the note is down more than 10% over the past two weeks [also see Barclays Rolls Out Inverse VIX ETN].
Disclosure: Eric is long EWZ.