U.S. equity markets continued their surge in Wednesday trading as the major indexes rose thanks to solid performances in the financial and basic materials sectors. The Dow was the laggard on the day gaining 0.7% compared to a 0.8% gain for the Nasdaq and a 0.9% surge for the broad S&P 500. These gains were matched by more strength in the commodity sector as gold and oil rose marginally but were outpaced by solid performances in the grains and softs sectors as soybeans and corn led all agricultural commodities on the upside. This surge in commodities, spurred by supply issues, was also buoyed by a weak dollar as the greenback slid against most major currencies and saw yields rise for most U.S. Treasury bond issues as well.
Markets jumped on continued optimism over the situation in Europe as investors cheered the result of a highly-anticipated government bond auction in Portugal. The embattled-European nation managed to raise $1.6 billion in bonds at rates much lower than many market participants had expected which helped to boost sentiment around the globe. Meanwhile, U.S. equities in the financial sector received a nice boost from a Wells Fargo analyst report which upgraded the company’s outlook of the banking sector, leading bellwethers JP Morgan and Bank of America up by over 2% on the day. “Optimism is not in short supply,” said Bob Jergovic, chief investment officer at CLS Investments. “I’m just watching with amazement as the market churns higher.”
One of the biggest winners on the day was the Market Vectors Agribusiness ETF (MOO) which jumped by 2.6% in the session. These sharp gains were largely the result of ongoing supply issues in the farming world, leading many to speculate that more will turn to agribusiness firms in order to boost yields and exploit the current runup in prices. Ongoing weather issues in Australia are undoubtedly playing a role in today’s surge but it is also likely that traders focused in on comments from the USDA as a key reason for the price spike in a variety of agricultural commodities. In its monthly update, the USDA said that it was lowering its ending-stock projections for wheat, corn, and soybeans for the current year, and boosting anticipated prices for all three of the commodities as well. “We remain buyers of the farm-equipment stocks as fundamentals remain solid and farmers have cash to spend on equipment,” analysts at Jefferies & Co. wrote in a research note, suggesting that this bullish trend could continue for some time [see holdings of MOO here].
One of the biggest losers in the ETFdb 60 was the PowerShares DB U.S. Dollar Index Fund (UUP) which sank by 1.0% in Wednesday trading. Today’s losses came after traders once again embraced the euro in-light of the solid Portuguese bond sale and less-than-promising data back in the United States. The main point of concern was the U.S. federal budget deficit figures which were released earlier in the session and showed that the budget deficit hit $79.9 billion in December, likely pointing to another year of trillion dollar deficits for the American government. Given the rapidly declining fears in Europe, many have bought up euros at expense of the dollar hoping that the sovereign debt crisis is finally starting to taper off now that we are in the new year [see more on UUP's fact sheet].
Disclosure: No positions at time of writing.