American equity markets capped off a volatile week in the red as continued worries over Europe– this time with regards to Italian banks– and weakness in the tech sector led to losses across the board. The Dow finished the day lower by close to 1% while the broader indexes slid by a little more; the S&P 500 sank by 1.2% and the Nasdaq fell by 1.3%. Commodity markets were more mixed as gold tumbled by $20/oz. to finish just above the $1,500 mark, while oil recovered slightly from yesterday’s sell-off, finishing the day up marginally. Softs continued this mixed trend as coffee, cotton, and orange juice finished the day on a high note, but wheat, corn, and cocoa all suffered losses, including a nearly 2.2% decline in the corn market. Meanwhile, commodity and bond markets saw further inflows to the U.S. dollar, the euro lost nearly a cent against the greenback while the two year continued to see its yields fall, as this note is now only yielding 0.34%.
One of the biggest ETF winners on the day was the iPath S&P 500 VIX Short-Term Futures Fund (VXX) which soared by 4.3% in Friday trading. Today’s gains for this ETN representation of the ‘fear index’ came as traders once again focused on the European markets to close out the week. Traders zeroed in on Italian banks in particular as these institutions were rocked in Friday trading thanks to a possible downgrade by Moody’s of 13 firms, including the country’s biggest bank, Unicredit. Traders also cited worries over rumors that Italy itself would be downgraded, further sparking fears over a European contagion. Thanks to these concerns spreading to one of the world’s ten largest economies, as well as ongoing worries over the Greek situation, traders fled equities across the board and sought protection in the safe havens of Treasury bonds and VXX in order to wait out the storm [see charts of VXX here].
One of the biggest ETF losers was the Market Vectors Gold Miners ETF (GDX) which sank by 2.7% to close out the week. This drop came as gold experienced its worst two day stretch in seven weeks as demand for cash accelerated in light of the ongoing crisis in Greece and the aforementioned worries in Italy. Some also felt that today’s decline was just a continuation from yesterday’s slide as demand for dollars has increased heavily in this short time period. “The sour economic news recently, combined with dwindling hopes for any further quantitative easing in the near term, are weighing heavily on the metals” said Brien Lundin with the Gold Newsletter. This gloom over the yellow metal’s near term outlook hit the gold miners pretty hard in Friday trading, causing the fund to sink more than the overall market and pushing the two day loss for GDX to 3.8% [see fundamentals of GDX here].
Disclosure: No positions at time of writing.