Although markets surged to start Wednesday trading, most benchmarks gave back much of their losses to finish the session after hearing comments from Ben Bernanke in his testimony to the House Financial Services Committee. “The last round of quantitative easing was absolutely beneficial for stocks, and the gains today are on the prospects for what is potentially further stimulus,” said John Kosar, director of research at Asbury Research in Chicago. “However, the fact that we’re even discussing another round shows how the economy is still struggling.” As a result, the Dow finished the day higher by about 0.4% trailing the Nasdaq which gained 0.6% but beating out the S&P 500 which posted a gain of just 0.3% in today’s trading. Meanwhile, in commodity markets, gold continued to soar thanks to the prospect of more easing in the U.S. while oil added about fifty cents on the day, finishing just below the $98/bbl. level. The day was also a pretty solid one for most natural resources with the exception of copper, cattle, and sugar which all finished in the red. Instead, the leaders in the commodity world were in the grains market as rice and Kansas City wheat both gained more than 3% and Chicago wheat soared higher by 6.3% during Wednesday trading. Commodities had the wind at their backs today thanks to a weak U.S. dollar as the U.S. dollar index declined by over 1.1% in the session, led by further losses against the euro and yen. With that being said, T-Bills were flat on the day as yields stayed pretty much unchanged despite ongoing concerns over the debt ceiling.
One of the biggest ETF winners on the day was the Market Vectors Gold Miners ETF (GDX) which surged by 3.3% in Wednesday trading. Today’s gains in this popular gold equity fund came as the yellow metal gained more than $23/oz in the trading session to close at a new all-time record. “Inflation and deflation have now been slugging it out for over a decade, and physical gold remains an obvious, sensible refuge for private savings caught in the middle,” said Adrian Ash, head of research at BullionVault.com “A European debt-default, plus QE3 in the States, would make the perfect storm yet again.” Thanks to ongoing speculation over both of these scenarios, as well as issues regarding a debt default in the U.S., investors have been piling into precious metals and precious metal miners for the past few trading sessions. GDX is now up close to 7% over the past week and nearly 11% over the last month, suggesting that as the market gets more tumultuous investors are once again seeking refuge in the gold corner of the marketplace [see holdings of GDX here].
One of the biggest ETF losers in Wednesday trading was the PowerShares DB USD Index Bullish Fund (UUP) which fell by 1.1% on the day. Today’s losses in this fund came thanks to weakness against many of the world’s major currencies as the prospect of more quantitative easing and a lack of consensus on the debt ceiling tugged at the strength of the greenback during Wednesday trading. The dollar, and by extension UUP, especially sold-off on Bernanke’s comments that the Fed is examining several ‘untested’ methods to stimulate growth in the world’s largest economy. “Bernanke’s comments on the economy [were] not nearly as bearish as investors had feared but his credibility has been lost by the Fed’s miscalculation of the U.S. recovery. Ending asset purchases in June may have been premature,” said Kathy Lien of GFT in a research note. Since UUP tracks a trade-weighted basket of currencies, the bulk of the fund’s loss came as a result of euro strength, as the common currency gained more than 1.8 cents in the session against the greenback, sending UUP to a sharp loss on the day [see charts of UUP here].
Disclosure: No positions at time of writing.