U.S. equity markets continued their plunge on Tuesday after extremely weak housing data sent markets tumbling. The Dow finished down 1.2% while the S&P 500 and the Nasdaq posted losses of 1.3% and 1.5% respectively. This pushed investors into safe havens such as gold and Treasury bills which once again saw gains; gold prices finished above the $1,230 mark while the Ten Year Bond yield plunged to below 2.5%. This gloomy day came after existing home sales slumped by 27.2% compared to last month and to the lowest level in 15 years. Economists were also off by nearly one million units in their forecast, underscoring just how quickly the bottom has fallen out of the housing market. “The numbers in the housing market just reinforced the notion that housing has double-dipped,” said Quincy Krosby, chief market strategist at Prudential Financial. “That in and of itself is worrisome because the retail investor is very much attuned to the local housing markets and extrapolating from that into the stock market.”
The ETFdb 60 Index dropped 7.56 points, or 0.7%, as losers outnumbered winners by more than three-to-one.
One of the biggest gainers on the day was the Vanguard Long-Term Bond ETF (BLV) which gained 1.2% on the day. Today’s gains came thanks to increased investor anxiety over the state of the economy which pushed many investors into the relative safety of long-term bonds which offer a better yield than their short-term counterparts. As double dip fears have intensified, investors have flocked to the asset class, pushing up prices and sending yields to near record lows. BLV has surged more than 15% over the past 26 weeks and has even posted a gain of 4.2% over the past two weeks, showing just how much demand exists for these longer-term securities. “The market is expensive but right now there is a desire for investors to just have their invested money returned to them down the road and you’re not getting that kind of safety in other asset classes,” said John Spinello, chief fixed-income strategist at Jefferies [see charts of BLV here].
One of the biggest losers in the ETFdb 60 was the SPDR Select Sector Fund Health Care Fund (XLV) which plummeted by 2.1%. This sharp loss came after an extremely disappointing earnings report from medical device giant Medtronic which fell by more than 10% in Tuesday trading. The company reported a 4% decline in revenues and earnings of 80 cents a share but really took a hit on its outlook for the 2011 fiscal year. The company said it now expects 2011 EPS to range between $3.40 and $3.48, with revenue growing between 2 percent and 5 percent on a constant currency basis compared with its prediction in June of between $3.45 and $3.55 per share with revenue growth ranging between 5 percent and 8 percent. This news sent health care equities tumbling across the board and led to spike in volume for XLV which saw more than 12.1 million shares change hands today compared to its average of just 8.3 million [As we predicted, health care ETFs were in focus today, see our report in Tuesday's ETF To Watch].
Disclosure: No positions at time of writing.