Markets ended a four week losing streak as Bernanke’s speech at Jackson Hole, Wyoming calmed investor fears and sent many rushing into equities. Although the Chairman didn’t announce further easing measures, he did note that the FOMC would consider all the options at a two day meeting of the board in September. Thanks to hopes that maybe the economy wasn’t as bad as initially thought, the Dow gained 1.2%, the S&P 500 rose by 1.5%, and the Nasdaq jumped by just under 2.5% for the session. Meanwhile, in commodity markets, oil trended higher on hopes of more economic acitivity while gold surged, nearly erasing its swoon from earlier in the week as the yellow metal rose to $1,823/oz., a gain of 3.4% for the day. In fact, the day was pretty good for commodity futures across the board as only RBOB and lean hogs finished in the red of the major commodities that Bloomberg tracks on its website.
Unsurisngly given the strength in commodities, the U.S. dollar index fell by about fifty cents on the day, sinking to the $73.76 level. This came after a 1.1 cent loss against the euro and a nearly .8 yen loss against the Japanese currency, although the dollar did manage to hang tough against the pound. In Treasury markets, traders once again saw demand for safe havens as the Ten Year saw yields fall below 2.2% and the two year once again hit the 0.2% yield level.
One of the biggest ETF winners on the day was the iShares MSCI South Korea Index Fund (EWY) which gained 3.3% in Friday trading. These gains were largely the result of the market breathing a sigh of relief over Bernanke’s comments and a general push to risky assets. South Korea is still seen by many as an emerging market and the country has one of the more liquid exchanges in the world so when demand for risky assets surge, South Korean shares are among the first to benefit. Today was no different as the search for growth led to three percent gains in funds tracking emerging markets such as Thailand, Turkey, and Poland as well. Thanks to these gains, the popular South Korean fund is now up 4.3% over the past five days, helping the fund to eat into its double digit one month loss [see holdings of EWY here].
One of the biggest ETF losers in today’s trading was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which fell by 1.6% in the session. Today’s losses, which came on volume that was a little lower than investors have been seeing in the near-term, was a result of broad market strength after the Jackson Hole speech. Demand for this ETN representation of the ‘fear index’ was extremely low in light of Bernanke’s statement which really didn’t clarify anything for investors one way or another. Many just took it as a sign that maybe the economy wasn’t in such bad shape after all, spurring bargain buying across the board. “More stimulus would have riled investors into thinking that things are actually worse than we see,” Keith Springer, president of Springer Financial Advisors, wrote in an emailed comment. Thanks to these losses, VXX is now down 3.5% for the week, helping the fund to return to its longer term trend downward after its stellar one month gain that is now approaching 86% [see more charts of VXX here].
Disclosure: No positions at time of writing.