Despite a series of earnings reports on Monday, Wall Street’s focus turned once again to the financial sector to start the week, as a major vote on a potential regulatory overhaul loomed. Capitol Hill was buzzing over the weekend as legislators worked around the clock to iron out details of a bill proponents say could help avoid another meltdown and opponents claim will cripple American capitalism. Also over the weekend, tensions escalated in South Korea following the release of a report indicating that a navy ship sunk earlier this month as the result of a missile attack.
The ETFdb 60 Index, a benchmark measuring the performance of asset classes available through ETFs, slid 0.76 points, or 0.1%, to close at 1,076.76. Losers outnumbered winners by a wide margin, but many components finished the day nearly unchanged.
The biggest loser in the ETFdb 60 on Monday was the Financials Select Sector SPDR (XLF), which slid 1.56% on the day after opening the day sharply lower and dipping again in late trading. Over the weekend Senate Democrats came to a tentative agreement on a key portion of financial regulation legislation, including setting new restrictions on derivatives trading and potentially forcing banks to spin off derivatives trading businesses. While both parties have agreed that enhanced rules are needed, Republicans have expressed concerns that the Obama administration’s plan would prohibit the use of derivatives to hedge risks. Berkshire Hathaway chairman Warren Buffett was among those lobbying Congress on the issue, pushing for an exemption for existing derivatives contracts from any new rules.
The uncertainty in the financial sector gave a boost to the iPath S&P 500 VIX Short-Term Futures ETN (VXX), which added 1.6% on the day as investors sought protection against a period of potentially higher volatility in equity markets. VXX, which is linked to an index consisting of first and second month VIX contracts, (see charts of VXX performance), has lost about 80% of its value over the last year, including a drop of 45% already in 2010 (see VXX: The New UNG?)
Disclosure: No positions at time of writing.