U.S. equity markets jumped higher to start the week with the Dow surging higher by 100 points and the Nasdaq and S&P 500 both posting gains above 1.1%. In commodity markets, oil fell to start the day after reports that hurricane Bonnie was weakening and unlikely to impact Gulf production but the price of the important commodity rose back up to its starting price after some rosy economic data was reported. One of the key news items was a report that new home sales jumped higher by 23.6% in June to a seasonally adjusted annual rate of 330,000 compared to government estimates of 300,000 shares sold. Although this is a very low number, many analysts cheered the figure due to the fact that many had thought that the rate of homes sold would decline significantly once the tax credit expired in late May since would-be home-buyers no longer had a large tax credit to nudge them into purchasing homes. However, not all analysts were impressed by the numbers citing the fact that it was the second lowest sales rate on record. “Builders sold almost no new homes in May so the sharp rise in June shouldn’t be taken as a sign the housing market is suddenly on fire,” wrote Joel Naroff, president of Naroff Economics Advisers.
Additionally, markets surged on a robust report from market bellwether Federal Express which raised its profit outlook for the rest of 2010 and confirmed that it would again match employee contributions into 401(k) accounts. “It’s definitely a positive sign that we are seeing improving global economic growth,” said Jim Corridore, an analyst with S&P Equity Research. “Restoring the 401(k) match is also a sign of optimism that we’re not going to see a double-dip recession.” This sent shares higher by more than 5.6% on the day and helped to boost optimism that increased package deliveries would come as a result of increased business activity.
As a result of this, one of the biggest winners on the day was the iShares Dow Jones Transportation Average Index Fund (IYT) which jumped higher by 2.8%. The robust earnings report from FedEx helped to boost the transportation sector at large and send shares of the company markedly higher. This was a result of the Memphis based giant boosting its earnings estimate for the rest of the year from $.85-$1.05 a share to $1.05-$1.25 a share and also increasing its 2011 fiscal year outlook by 20 cents. FedEx is the top holding in IYT making up 11.7% of assets which helped to send shares of IYT sharply higher on the day and propel the fund to a 9.7% gain for 2010 [see holdings of IYT here].
One of the biggest losers in the ETFdb 60 was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which fell by 3.5%. With broad gains in the market, the ‘fear index’ was one of the main losers on the day as investors once again embraced equities and shunned traditional safe havens such as Treasury bills and gold. This push sent shares of VXX tumbling, further adding to the fund’s recent losing streak. Over the past week VXX has tumbled 16.6% and is down 33% so far in 2010 [see fundamentals of VXX here].
Disclosure: No positions at time of writing.