American stock markets tumbled in Wednesday trading as severe weakness in the commodity and natural resource sector dragged down a variety of other equities on the day. The Dow finished down 130 points while the S&P 500 and the Nasdaq lost 1.1% and 0.9%, respectively. However, these losses paled in comparison to a number of commodity products which tumbled significantly on the day, including all of the energy commodities, most of the softs, as well as the precious and industrial metals. The biggest individual losers were, by far, RBOB gasoline (down 7.2%) and silver (down 8.3%), suggesting that the losses were widespread and went beyond safe havens and into other commodity sectors as well.
Thanks to this sharp move lower, a number of investors are growing increasingly concerned about the stock market and its fortunes during the summer period, with many calling for a continued pullback in the weeks ahead. “The correction in commodities over the past week is the first shaking of the tree that should not be ignored and will be the precursor to a painful 10%-plus correction in stocks over the next few months,” said Peter Boockvar, equity strategist at Miller Tabak & Co. “Both rallied hand in hand since late August and thus won’t be separated in market action.” Due to predictions like these, the U.S. dollar soared against major rivals in Wednesday trading, breaching through the $75 mark on the U.S. dollar index. This also caused more traders to pile into T-Bills and other government related assets; yields fell below the 3.2% mark on the ten year note while the 2 year hit a 0.55% level.
One of the biggest winners in the ETFdb 60 was the PowerShares DB US Dollar Index Fund (UUP), which rose by 1.0% in Wednesday trading. Investors bought up U.S. dollars across the board against the greenback’s major rivals, including nearly a two cent surge against the euro and a one cent gain against the Australian dollar. These gains came thanks to a number of issues, the most significant of which was high inflation readings in both Germany and China, two important economies that may have to reconsider their current monetary policies in the near future in order to combat these price increases effectively. Additionally, heavy selling in equities and commodities further increased the demand for the dollar as traders sought out risk free assets such as U.S. T-Bills in order to weather today’s storm, adding to the gains for the world’s reserve currency of choice [see more on UUP's fact sheet].
One of the biggest losers in the ETF world was the Market Vectors Gold Miners ETF (GDX), which fell by 3.3% on the day. Demand for gold miners dried up in Wednesday trading as gold continued to show weakness, falling below the $1,500/oz. mark before rebounding to 1,502/oz. to close out the day. This represents a nearly 1% loss for the metal on the day, and since many of the miners are also located outside of the U.S. the strengthening dollar further added to these woes, causing most gold miners to sink in today’s session. It has been a rough couple of sessions for gold miners, as GDX is now down 5.7% over the past week and close to 10% over the past one month period [see holdings of GDX here].
Disclosure: No positions at time of writing.