U.S markets surged in Tuesday trading as solid reports regarding European PMI reports more than offset further weakness in the American housing market. The Dow rose by just under 3% in the session, but was outpaced by a 3.4% surge in the broader S&P 500 and a 4.3% jump in the Nasdaq market. These gains were led by broad strength in the tech and materials sectors while financials, utilities, and health care were more mixed but still rose higher as well. Commodity markets continued to be jumpy too; gold plunged by over 3.4%, or roughly $64/oz., while oil gained just over 2.1%. Similar jumps were seen in the rest of the energy and softs markets, while the precious metals led the way on the downside as the risk trade was back on for the time being.
Commodities were also boosted by more weakness in the greenback as the U.S. dollar index fell slightly, down below the $74 mark. The dollar slumped marginally against the euro and the pound, with similar losses coming against the yen as well. Given the movement out of dollars and into riskier assets, investors shouldn’t be surprised to read that T-Bills also saw outflows; the benchmark ten year note saw yields rise to 2.15% up from 2.12% at the beginning of the session.
One of the biggest ETF winners on the day was the PowerShares WilderHill Clean Energy Portfolio (PBW) which surged by 7.2% in the session. Today’s gains were largely thanks to higher oil prices, hopes for more energy demand, and a general move towards risky assets. The clean energy sector, despite the inroads that many firms have made, is still one of the more volatile in the ETF world as this particular fund has a beta of 1.5, so when markets rise PBW tends to do better than most. Additionally, many of the solar-focused names in the fund, such as JA Solar, surged on a report from Goldman Sachs that the industry was nearing a bottom. This helped to push top component JASO up by nearly 14% on the day while First Solar and Renesola also put up impressive performances as well, making it a very good day to be in the alternative energy industry [see holdings of PBW here].
One of the biggest losers in the ETF world was the SPDR Gold Trust (GLD) which fell by 3.8% in Tuesday trading. Today’s losses were the result of profit taking by many traders as the metal has risen by nearly 13.8% in the past month, creating a nice opportunity for those with a short-term focus. Yet, although gold may have given incredible gains to investors so far, many are starting to worry that the metal’s surge could quickly turn into a slump. “Gold looks very bubbly,” Matt Zeman, a strategist at Kingsview Financial in Chicago, said in a telephone interview for Bloomberg. “Gold’s going to continue to suck everybody in. There’s too much risk of a wicked correction lurking around the corner to enter the trade right now.” This speculation, along with the aforementioned profit taking, helped to move gold off of its highs today and send GLD down sharply below the $180/share mark, erasing the last few days of gains [see charts of GLD here].
Disclosure: Long PBW, long gold bullion, long IAU.