American equity markets endured another rocky session as most companies reached a high point in early morning trading before retreating back to finish up the day. The Dow managed to edge higher by eight points while the Nasdaq and S&P 500 posted more robust gains of 0.8% and 0.4%, respectively, while most commodity markets jumped as well. Gold and oil both posted gains in excess of 1% while grains were also big winners thanks to superb performances in the corn and wheat markets; both saw benchmark contracts rise by at least 2% in value.
There were several big catalysts for today’s market rally, as a number of events in Washington D.C. impacted stocks. Last night’s State Of The Union speech was well received by investors who cheered the President’s proposals to freeze discretionary spending but also ramp up investment in a variety of domestic programs such as clean energy and infrastructure. However, the optimism created by this speech, as well as more solid earnings reports, was quickly overshadowed by a FOMC meeting in the afternoon. In the meeting, the Federal Reserve Board expressed their lack of confidence in a robust economic recovery, stating that policy will remain incredibly loose for “an extended period.” The central bank governors also warned that growth “has been insufficient to bring about a significant improvement in labor market conditions,” suggesting that the recent malaise may continue for quite some time before the total economic situation improves.
One of the biggest losers on the day was the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), which fell by 0.6% in the session. The fund, which tracks an index measuring the performance of 600 highly liquid investment grade corporate bonds, saw its price fall as investors moved out of bonds and in to the rising stock market. LQD also experienced heavy volume which came in at nearly 50% above its daily average suggesting that the exodus from bonds was more widespread than just an isolated incident. This continued weakness in bond prices could help to push LQD down further over the next few weeks but could also boost the fund’s yield which currently stands at 4.2%, offering investors a chance to capture a more impressive yield in this low rate environment [see charts of LQD here].
One of the biggest gainers in the ETFdb 60 was the Market Vectors Gold ETF (GDX), which surged by 3.7% in today’s trading. Today’s gains were the result of strength in the price of gold–which rose by more than $12/oz.–and a solid day from a number of the fund’s key components. Both of the fund’s top two holdings, Barrick Gold and Goldcorp, rose by more than 3.5% on the day while number three holding Newmont Mining also posted a strong day, gaining over 2%. These gains helped to reverse a brutal stretch for gold miners who have been hammered by continued weakness in the price of the yellow metal. Despite today’s surge, GDX has still lost 8.5% over the past two weeks and more than 10% so far in 2011 [see holdings of GDX here].
Disclosure: No positions at time of writing.