Equity markets took a dramatic surge higher in the first few minutes after the opening bell and never looked back. Bullish reports from a variety of major U.S. companies propelled the Dow up by over 200 points, the S&P 500 up by 2.3% and the Nasdaq higher by close to 2.7%. Commodity markets also received a boost as gold gained and oil finished the day above $79/barrel. This surge came after American giants Caterpillar, 3M, UPS, and AT&T all topped earnings forecasts and raised their outlooks for the rest of the year. Additionally, good manufacturing data out of Europe and an optimistic outlook for tomorrow’s bank stress tests sent shares sharply higher across the Atlantic. The reports out of Europe were “a big surprise because everyone expects that to be the Achilles heel of the global economy,” said Anthony Chan, chief economist at J.P. Morgan Private Wealth Management in New York. However, there was a jump in the number of people seeking unemployment benefits for the first time, which helped to cap the gains for Thursday’s trading session.
One of the biggest losers on the day was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which fell by 5.2%. This sharp loss came as investors embraced risk after yesterday’s sharp drop and weak outlook from the Fed in light of robust earnings from many of America’s largest companies. Caterpillar said its orders are growing and production will pick up in the second half of the year while UPS raised its outlook because of spending by businesses. Caterpillar’s stock rose 2.1 percent, while UPS gained 5.9 percent. Conglomerate 3M also reported a strong quarter in which it beat expectations by six cents a share and increased revenues by close to $1 billion. These bullish reports sent the fear index, which was soaring after the Fed Chairman’s comments yesterday, plummeting lower and pushing down the fund 7.2% over the past week [see more information on VXX's fact sheet].
One of the biggest gainers was the Vanguard European ETF (VGK) which soared higher by 4.3% in Thursday trading. This spike came after it was reported that the euro zone Purchase Managers Index (PMI) made a surprise recovery to 56.7 after posting 55.6 in June. The largest gains came in Europe’s biggest economy, Germany, which saw its PMI jump to 61.2 from 58.4, which helped to offset a loss in France. This gain ends three months of declines for the key indicator and could signal more robust growth in the euro zone going forward thanks to their cheaper currency which makes exports less expensive in foreign markets. “July’s rise in the euro-zone composite PMI suggests that, for now at least, the region is — perhaps surprisingly — evading the threat of a double-dip apparently facing the US and UK”, said Ben May, an economist at Capital Economics in London [see more information on VGK's fact sheet].
Disclosure: No positions at time of writing.