Daily ETF Roundup: PBW Tanks On Risk Aversion & Oil, VXX Jumps On Continued Uncertainty

by on July 27, 2011 | ETFs Mentioned:

U.S. equity markets plunged in Wednesday trading as weak data and more fears over a debt default hit stocks. The Dow plunged by 1.6% while the broader indexes fell by over 2% with the S&P falling by just more than two percent and the Nasdaq sinking by 2.7% on the day, led by large losses out of tech giants Cisco and Apple. Meanwhile, in commodity markets, most natural resource benchmarks finished the day lower as WTI crude fell by close to 2.3% and safe haven commodities finished marginally lower as well. Grains and other softs also finished in the red; only wheat, corn, and sugar finished the day with gains worth mentioning. These losses came thanks to surprising strength in the U.S. dollar as the index rose by 0.8% on the day to just over the $74 mark. While the currency traded rangebound against the Aussie dollar and the pound, it gained close to 1.5 cents against the euro, pushing the cost of the common currency in dollar terms down below the $1.44 level once again. Despite these dollar gains, traders did push out of T-Bills across the board in Wednesday trading. The 10 Year added two basis points to its yield while the two year saw its yield spike by six basis points, enough to put the short term benchmark at a 0.45% yield to close the day’s trading session.

One of the biggest ETF winners on the day was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which gained 5.9% on the day. Today’s gains came on exceptionally high volume which was close to double the daily average of 23.6 million shares and was largely the result of a lack of progress in the debt ceiling deal. Congress appears to be no closer to a deal than they were weeks ago, leading many traders to worry that even if a last-minute agreement is reached, it will not be enough to stave off a downgrade by the major ratings agencies. “Ratings agencies can already easily make the case for a downgrade of the U.S. credit rating from AAA to AA,” analysts at JBC Energy, a consultancy based in Vienna, said in a research report. “We think this is going to happen, reflecting not only the relatively dire state of the U.S. economy, but also the inability of the political system to cope with the current situation in a responsible manner.” Thanks to these worries, demand for this ETN representation of the ‘fear index’ was sky high during today’s session, helping to push the popular product close to its one month high [see charts of VXX here].

One of the biggest losers in the ETF world was the PowerShares WilderHill Clean Energy Portfolio (PBW) which plummeted by 3.5% on the day. These sharp losses came due to a few reasons which kept the pressure on the alternative energy sector during Wednesday’s session. First, since the sector is often one of the more volatile and risky ones in the market– the fund has a beta of nearly 1.7– desire for safe havens and less risky equities hit this corner of the market hard, as many investors pulled out of clean tech companies in favor of less volatile assets. Furthermore, weakness in crude prices didn’t help matters as U.S. inventories of the commodity rose by 2.3 million barrels last week, helping to push prices of WTI below the $98 mark and made clean energy, which is often more expensive than fossil fuels, less appealing by comparison. Selling was especially bad in some of the solar and battery names that are in the top ten components of PBW as Renesola plunged by close to 5.3% while Advanced Battery Technologies sank by nearly 8.3%, underscoring the rough day of trading in this often volatile sector [see more holdings of PBW here].

Disclosure: Long PBW.