U.S. equity markets had another strong day as news of Microsoft buying Skype for $8.5 billion created a bullish trend throughout the stock market. The Nasdaq led the big three, gaining just over 1% while the S&P 500 rose by 0.8% and the Dow gained just 0.6% in comparison. Meanwhile, commodity markets continued to broadly rebound from last week’s sell off as gold gained 0.9% and oil rose by nearly one dollar per barrel. Other commodities, most notably the soft products of cotton and sugar, also posted strong days while silver continued to claw back much of last week’s losses, gaining close to 3.9% on the session. These strong performances out of the commodity sector came as the U.S. dollar weakened slightly against its major rivals and as traders dumped their T-bill holdings in favor of riskier assets. Yields were up on both the two and ten year notes as investors continue to pile back into stocks and commodities after last week’s tumultuous sell off.
One of the biggest winners in the ETFdb 60 was the United States Natural Gas Fund (UNG), which rose by 2.3% in the session. Today’s gains came thanks to a hot weather forecast across much of the Southern United States, sparking speculation that the fuel would be in high demand for air conditioning across that part of the nation. In fact, some reports indicate that temperatures across the Midwest and South will be as much as 14 degrees Fahrenheit above normal, suggesting higher than normal demand for the popular fuel. “It’s very hot in the southern U.S. so there will be more air-conditioning demand,” said Peter Linder, president of the DeltaOne Energy Fund in Calgary. “The correction was overdone and traders are getting back in.” Thanks to this, UNG has come back a little, but the beaten down fund is still down 9% over the past week alone, suggesting that it will take more than a couple of days of warm weather to eat into the fuel’s oversupply and bring the price of UNG back up [see fundamentals of UNG].
One of the biggest losers in the ETF world was the iPath S&P 500 VIX Short-Term Futures ETN (VXX), which sank by 3.5% in Tuesday trading. These losses were largely the result of widespread optimism over the short-term future of the market as traders cheered a few earnings reports as well as MSFT’s play for Skype, hoping that M&A and earnings will continue to move the market higher in the coming days and weeks ahead. “The earnings season has been a pleasant surprise,” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $53 billion. “There wasn’t a great deal of optimism that earnings were going to beat estimates with the vigor that we’ve seen. On top of that, we’re getting big M&A deals. That’s an indication that companies have a lot of cash and will continue to do deals.” Thanks to this sentiment, investors had little use for the ETN tracking the ‘fear index’ causing the price of VXX to slump on slightly above average volume during today’s session [see charts of VXX here].
Disclosure: No positions at time of writing.