Equity markets continued the December 2010 rally into the new year with solid performances out of all the major indexes. The Nasdaq led the way on the upside with a gain of 1.5% and was trailed by gains of 1.1% in the S&P 500 and a 0.8% jump in the Dow. In commodity markets, broad strength was seen in the softs as well as the energy markets while precious metals and livestock underperformed. Currencies finished the first session of 2011 relatively flat as the U.S. dollar index rose by 0.3% and Treasury yields rose moderately across most maturity levels.
The main catalyst for today’s surge came as bulls reigned in both European and Asian markets ahead of solid manufacturing data in the U.S. In fact, it was reported that manufacturing grew for the 17th straight month as the ISM’s index rose to 57% from its previous level of 56.6% while the Commerce Department reported a similar gain in construction spending for November, painting an early bullish picture for the market in the new year. “All of the forecasts come out of Wall Street, and those expectations for the year give January a nice indicative effect of what the year will look like,” said Jeffery Hirsch, the editor of the Stock Trader’s Almanac.
One of the biggest gainers in the ETFdb 60 was the often-volatile United States Natural Gas Fund (UNG) which surged by 5.2% on the day. Today’s gain, which came on incredible volume of close to 60 million shares– putting the fund as one of the 10 most traded products on American exchanges for the day– came on forecasts of sharply colder weather across much of the country. “Over the holiday weekend, the models progressed the major cold threat forward,” CWG forecasters wrote in a client note. “Widespread cold weather is indicated over most of the U.S. for the 6-10 and 11-15 day” forecast periods. This prediction helped to boost natural gas demand to start the week but a prolonged cold snap is likely going to be necessary to eat into the severe natural gas overhang that is present in the market suggesting that once warmer temperatures arrive UNG could see its price resume its steady decline that it experienced for much of 2010 [see more charts of UNG here].
One of the biggest losers on the day was the Market Vectors Gold Miners ETF (GDX) which sank by 1.2% to start the year. The demand for the ultimate safe haven lost some of its luster in Monday trading thanks to a robust performance out of equity markets and a moderately stronger dollar. Solid manufacturing data as well as rebounds in foreign markets further helped to dispel the idea that a collapse was imminent, sending gold prices tumbling from their high and pushing down gold miners in the process. “Certainly, gold and silver are not cheap at these prices,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “The stock market will rally, and bond yields will go up, which will make commodities less attractive.” [see holdings of GDX here]
Disclosure: No positions at time of writing.