March got off to an extremely rough start in the equity markets as fears over the Middle East continued to weigh on stocks across the board. The Dow, buoyed by some of the larger energy names, finished the day down 1.4% compared to a slightly more dramatic 1.6% loss for both the Nasdaq and the S&P 500. Commodity markets on the other hand continued their recent surge as gold finished higher by 1.8% and WTI crude jumped above the $100/bbl mark to post a 3.6% gain on the day. Most other commodities finished the day marginally higher as well although energy products were a clear winner while livestock was a loser across the board.
Unquestionably, the main focus of the market in today’s session was the rising tensions in the Middle East and their impact on crude oil prices. As the situation continues to deteriorate in Libya, a variety of economic and political sanctions have been put on the country in order to force embattled dictator Moammar Gadhafi to step down from power. However, the Libyan leader remains defiant and there are growing concerns of international involvement in the area. Thanks to this continued turmoil, many are now setting their sights on Saudi Arabia and any protests that may crop up in the extremely important oil producer in the near future. In fact, the stock market in the Kingdom sank by 7% during Tuesday’s session as fears continue to grow that the country will face the same fate as some of the other nations in the region. “All eyes continue to be on turmoil in the Middle East,” said Michael Sheldon, chief market strategist at RDM Financial. “The million-dollar question remains what happens to Saudi Arabia.”
One of the biggest ETF winners on the day was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which skyrocketed by 7.5% thanks to the Mideast tensions and slumping equities across the board. Demand for this ‘fear index’ was at an incredible level during Tuesday’s session as more than 30 million shares changed hands on the day, nearly triple the fund’s average daily volume. Today’s gains further the ETN’s solid run over the past few weeks; the popular product is now up 8.8% over the past two weeks and 11.8% in the past week alone, numbers that could shoot even further if protests continue or spread to large oil exporters such as Saudi Arabia [see fundamentals of VXX here].
One of the biggest losers in the ETFdb 60 was the United States Natural Gas Fund (UNG) which slumped by close to 4.0% in Tuesday trading. These steep losses came despite a run up in virtually every other energy related commodity on the day, once again leaving UNG as one of the few losers in the oil & gas ETFdb Category. The decline was largely due to a report from the government that showed U.S. gas production rising for a fifth consecutive month in December. The numbers also showed that the increase exceeded expectations as well; analysts had predicted a gain of 0.8% but the actual came in at 1.1%. This news further added to analyst worries over excess supply in the market and with the height of the gas consuming season behind us, many fear that demand will remain slack and an even bigger supply glut could build, further crushing UNG [see charts of UNG here].
Disclosure: No positions at time of writing.