Stock markets pulled back from their strong gains yesterday to finish the day in the red. Although investors were hopeful that a strong start to August would push equities forward, their expectations were halted today with the Dow losing 38 points, the Nasdaq dropping 11.8 points, and the S&P 500 falling 5.4 points. Though equity markets felt the pinch, oil gained 1.3% and gold was 0.2% higher on the day as investors sought the relative safety of the precious metals market. The fall in equities was attributed to disappointing earnings from Procter & Gamble and Dow Chemical which both reports weak profits which fell short of earnings estimates. Meanwhile, consumer spending for July showed little change from June signaling to many that the recovery was continuing to slow down. As markets slid, many investors piled into fixed income securities which helped to send interest rates sharply lower and bond prices surging yet again.
The biggest ETFdb 60 gainer of the day was the SPDR Lehman International Treasury Bond Fund (BWX), which spiked 1.7% during market hours. This spike came after the weak data in the U.S. and further rumors about a continuation of a quantitative easing program in the U.S. in order to boost the sagging economy. These bearish reports sent investors into the foreign bond markets, especially German Bunds which were the main beneficiary of the news. Investors also piled into Japanese bonds which performed well in an auction of 10-year securities with yields testing 1% for the decade long government securities. Both of these countries make up sizable portions of BWX which helped to buoy the fund in today’s rocky trading [see all of BWX's holdings here].
One of the biggest losers was the high-volume SPDR Select Sector Fund – Consumer Discretionary (XLY). The ETF dropped 1.4% on the day, likely due to the lukewarm consumer spending reports which showed that the personal savings rate rose to 6.4% in June or roughly three times the pre-recession levels and that spending was flat when compared with the previous month. “The underlying story that I seem to be saying over and over is that consumers are not feeling good enough to start spending on things that count, such as durables and houses, because the unemployment level is basically so high” said Chris G. Christopher the IHS Global Insight’s senior principal United States economist. This news led to a broad sell-off in the consumer sector with discretionary firms taking the brunt of Tuesday’s losses [see more on XLY's fact sheet].
Disclosure: No positions at time of writing.