U.S. equity markets continued their slide in Tuesday trading as fears over a nuclear disaster in Japan weighed on global equities. The Dow was down close to 1.2% while the broader indexes suffered similar losses of 1.3% for the Nasdaq and 1.1% for the S&P 500. Meanwhile, commodities continued to take a beating as gold tumbled by close to 2% and oil plummeted by 3.6% on fears that demand from Japan would be significantly curtailed going forward. Other commodities had even more severe declines as the soft, grain, and livestock sectors were hit especially hard; wheat and sugar were both down by more than 7% in the session.
One of the biggest ETF winners on the day was the iPath S&P 500 VIX Short-Term Futures ETN (VXX), which soared by 4.2% in Tuesday trading. Today’s gains in the exchange-traded note offering exposure to the ‘fear index’ came as traders around the world worried about the possibility of a complete meltdown at a nuclear reactor in Japan. Fears over this possible catastrophe sent Japanese markets reeling in Tuesday trading as the Nikkei crashed by more than 10%, causing markets around the world to tumble in tandem. This heightened uncertainty caused many investors to rush into VXX, which saw volume exceed three times its daily average for a session. In fact, thanks to the Japanese crisis, VXX is now up just over 25% over the past month, underscoring just how intense the fear has become regarding the world’s third biggest economy [see more on VXX's fact sheet].
One of the biggest losers in the ETF world was the PowerShares DB Agriculture Fund (DBA), which fell by 4.6% on the day. Today’s losses were attributed to severe weakness in the grains market as traders feared the loss of Japanese raw material demand. Considering that Japan is one of the world’s five largest importers of corn, soybeans, and wheat, these fears helped to sink these three important commodities during Tuesday trading, leading DBA to one of its worst days in months. “It’s a fear-driven trade” focused on Japan, said Frank Cholly Sr., a senior strategist at Lind-Waldock in Chicago. “Demand is going to slow down, because even though they need to eat, they have more urgent things. They’ve got to stop the radiation leak, and they’ve got to find any survivors.” [see technicals of DBA here]
Disclosure: No positions at time of writing.