U.S. equity markets sank in Thursday trading as all the major indexes fell sharply on weak data. The Dow plunged 1.4% while the Nasdaq and the S&P 500 both fell by 1.7% as traders fled risky assets for the relative safety of gold and U.S. Treasury bills which both saw their prices risen today’s trading session. Markets fell on news that weekly jobless claims rose by 12,000 to the half million mark, the highest in nine months. This marked the third straight week which saw a rise in jobless claims leading many to believe that the economy is likely to head back into a double dip recession as job losses accelerate and unemployment rises thanks to the ending of the stimulus and the census. “The rise in initial jobless claims over the past three weeks makes it difficult to maintain confidence in the recovery and suggests the labor market is backtracking,” Ryan Sweet, an economist at Moody’s Analytics, wrote in a note to clients.
One of the biggest gainers on the day was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which rose by 4.3%. This came as traders stormed into safe havens on rising fears over the state of the economy and its long-term health.”Clearly people think there is value in the market, but the economy does seem to be slowing here,” as the benefits of the stimulus start to wane, said Robert Phipps, a director at Per Stirling Capital Management. “We’re traveling on a very rocky, bumpy road with lots of broken glass and we’ve already used our spare tire.” As investors fled equities it increased demand for the fear index which saw volume of close to 26.5 million shares, well above its daily average of 19.5 million. Despite this large gain, VXX is still down significantly since the beginning of the year off by close to 32% [see technical analysis of VXX here].
One of the biggest losers in the ETFdb 60 was the iShares Russell 2000 Value Fund (IWN) which fell by 2.8% on the day. As investors grew more fearful of the economic situation they fled equities with small caps being among the hardest hit due to their position as some of the most volatile and risky equities on the market. “We’ve gone nowhere in eight months,” said Alan Valdes, director of floor trading at Kabrik Trading, who said the unexpected jump of jobless claims to 500,000 depressed hopes for both hiring and consumer spending. “Five hundred thousand is a bad number–you can’t put any good spin on it,” he said. “This is a country that’s powered by consumer spending, but if they’re not working, they’re not spending.” Other small cap equity ETFs also suffered severe losses on the day which outpaced the decline of the broad S&P 500 and the Nasdaq. Today’s losses continue the weakness in the small cap sector which has seen IWN sink by 10.9% over the past three months and 5.3% in the last two weeks [see holdings of IWN here].
Disclosure: No positions at time of writing.