American stocks surged in Tuesday trading as solid earnings reports and hopes for a debt ceiling deal carried equities sharply higher. The Dow gained just a bit more than 200 points on the day while the S&P 500 managed to match the DJIA in percentage terms, gaining 1.6% as well. Meanwhile, the tech-heavy Nasdaq outdid its counterparts in the session, pulling ahead by 2.2% to close above the 2,825 level. Commodity markets were more mixed on the session as safe haven products such as gold and silver fell off their recent highs while riskier products such as those in the soft and grain markets saw banner days, led by a nearly 4.1% advance in the cotton market. Oil markets gained as well on the prospect of higher growth as WTI added close to $2/bbl. to finish Tuesday’s session just above the $97.75 level. These gains in commodity markets were largely boosted by a modest loss in the U.S. dollar index as the greenback fell by about 0.3% against its major rivals on the day with the most significant losses coming against the resource currencies of Australia and Canada. Nevertheless, yields plunged on medium term U.S. Treasury debt as fears over a debt ceiling issue eased and the 10 Year T-Bill saw yields sink to below the 2.9% mark, a loss of six basis points on the day.
One of the biggest winners in the ETF world was the SPDR Homebuilders ETF (XHB) which gained 2.7% in Tuesday trading. Today’s gains came as both housing starts and permits came in ahead of prior figures, while starts beat their seasonally adjusted annualized level for the month of June. Starts came in at 629,000 in SAAR terms, compared to analyst expectations which called for starts of just 575,000. This gain represents a 14.6% surge from the previous month and nearly 16.7% from the year ago period, leading some analysts to believe that the market is finally trending off of its abysmal numbers that were seen earlier this year and directly after the crash in late 2008. Thanks to this sentiment, investors bought up shares of XHB which is the most popular ETF tracking the housing market. The fund experienced volume more than two million shares above normal, helping to boost the State Street product back into the positives for the one-month period, as the fund is now up 0.5% in that time frame [see holdings of XHB here].
One of the biggest losers in the ETFdb 60 was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which tumbled by 4.7% on the day. These heavy losses, which came on above average volume, were largely due to declining worries over the debt ceiling issue, as well as the growing hope that a consensus will be reached shortly in order to avoid default on August second. This was the result of President Obama backing a $3.7 trillion deficit-reduction package that was designed by the so-called bipartisan ‘Gang of Six’. The plan calls for a roughly three-fourths/one-fourth split in-terms of spending cuts vs. new revenues and could reduce the deficit by half a trillion over the next decade. However, the plan still faces significant opposition from many groups and it remains to be seen if it can pass both chambers of Congress. Nevertheless, many market participants breathed a sigh of relief that at least the politicians in Washington were doing something to try to end the stalemate, decreasing risk across the board and causing demand for the fear index and VXX to plummet in the process [see more charts of VXX here].
Disclosure: No positions at time of writing.