Equity markets ended the week on a sour note, as major indexes slumped throughout the day. The Dow finished Friday down by 260 points, a 2.5% loss, while the S&P 500 fell by 2.9% and the Nasdaq plummeted by 3.1% on the day. Commodity markets also suffered as oil fell by 1.1% and gold sunk by $20/oz. This pushed investors further into T-Bills, as the yield on the ten year note fell to 2.94%.
The main catalyst for today’s sharp losses were weak revenues from the banking giants Bank of America and Citigroup as well as disappointing numbers from conglomerate General Electric. The tech sector fell as Google missed earnings after the bell on Thursday, which sent shares of the search giant down by more than 5% in Friday trading. “For the past several months the majority of the economic reports have been positive enough to say we’re still in a long-term growth trend, but within the past couple weeks the trend is becoming less positive,” said Randy Frederick, director of trading and derivatives at Charles Schwab. “It’s almost like we’re flattening out.”
The ETFdb 60 Index dropped 16.88 points, or 1.7%, as most equity components finished lower. Trading was at its heaviest volume of the week, as losers outnumbered winners by more than three-to-one.
One of the biggest winners was the iPath S&P 500 VIX Short-Term Futures ETN (VXX), which jumped higher by 6.5% on the day. This spike came after a slew of weak earnings reports as well as a free fall from the consumer sentiment survey. The popular survey, conducted by Reuters and the University of Michigan, fell from 76 in late June to 66.5 today. The index has only dropped that much seven times; this month’s decline was comparable to the post 9/11 drop. Due to this weakness in both the consumer and corporate sides of the market, VXX surged higher; the fund is now down about 20% to date 2010 and is up more than 40% over the past three months [see more charts of VXX here].
One of the biggest losers was the Financial Select Sector SPDR (XLF), which fell by 4.2% in Friday trading. This tailspin came after weak earnings reports from Bank of America and Citigroup, which combine to make up roughly 15% of XLF [see more holdings of XLF here]. Bank of America fell by 9.2% while Citi fell by 6.3% on the day. These steep drops came after both companies reported weak profits and sharply lower earnings than a year ago in the same period. This called into question the ability of the financial sector to generate earnings growth in the near future, especially with tough legislation looming. “Clearly they both beat on earnings, [but] most of that has to do with credit quality. The concern — and why investors aren’t applauding this — is because revenue is weak, lighter than expected,” said Shannon Stemm, a financial-services analyst at Edward Jones. “The question they’re asking is where is revenue growth going to come from in the future?”
Disclosure: No positions at time of writing.