Chaos gripped Wall Street on Friday, as the likelihood that Ben Bernanke won’t be confirmed to a second term as Fed chairman surged and uncertainty swirled around the financial sector in the wake of Obama’s proposed regulations to curb risk. The technology sector also sunk following Google’s earnings report after the bell on Thursday. Despite the fact that the search engine giant posted a big jump in profits and beat analyst expectations, shares sunk as investors were apparently hoping for more.
The ETFdb 60 Index, a benchmark measuring the performance of asset classes available through ETFs, lost 10.75 points, or 1.0%, on Friday, closing the week on a three day losing streak. The index has lost 3.3% during the last three sessions, which have seen some of the year’s largest volumes. Losers outnumbered winners by more than five to one on Friday.
The Select Sector Financial SPDR (XLF) was among the biggest decliners, dropping 3.3% on the day. President Obama spoke at a town hall meeting in the late afternoon regarding his plan to impose limits on banks’ speculative activity. Obama’s plan, endorsed by former Fed chairman Paul Volcker, centers around forcing banks to choose between government protection and the (usually) lucrative business of trading for their own accounts or owning hedge funds or private equity funds. The plan has already met sharp criticism from many Republicans, and has likely set the stage for an extended battle on Capitol Hill.
One of the few winners on Friday was the iPath S&P 500 VIX Short-Term Futures ETN (VXX), which gained almost 9% and the market’s expectations for short-term volatility jumped and investors raced to pick up insurance against continued turmoil in equity markets. The VIX was up almost 23% on Friday, highlighting that the relationship between volatility ETNs and the underlying benchmark is strong but not perfect (see this feature focusing on the impact of futures market contango on VXX and VXZ).
Disclosure: No positions at time of writing.