American stocks tumbled on the second day of Bernanke’s testimony on Capitol Hill, as hopes for more stimulus faded and debt ceiling talks dominated the headlines. The Dow finished lower by 0.4% while the S&P 500 slumped by 0.7% and the Nasdaq fell even further, dropping by 1.2% on the day. The biggest losses were in the industrial goods, services, and tech sectors, while the health care and consumer segments managed to hold firm despite broad market weakness. Commodity markets, on the other hand, finished mostly lower as well as gold rose by $2/oz. but oil tumbled by over $2/bbl. in Thursday trading. All other energy products finished the day lower while weakness was also seen in the grains and softs markets as well. The U.S. dollar was relatively flat in today’s session as the currency gained against the pound and yen but dropped when matched up against the Aussie dollar and the euro. In Treasury markets, U.S. debt was relatively flat despite ongoing issues related to debt ceiling talks. The Two-Year was flat on the day while the Ten Year saw yields rise by four basis points, putting the yield at the 2.96% mark to close the day.
One of the biggest ETF winners on the day was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which gained 3.6% in Thursday trading. Today’s losses were largely the result of Chairman Bernanke cooling expectations over more easing in the near future, pushing down stocks in the process. In his report to Congress, Bernanke declared that the FOMC was “not prepared at this point to take further action” quelling hopes of QE3. This news, along with unemployment claims still above 400,000 and further uncertainty over the debt ceiling, was enough to keep investors out of stocks and to increase demand for the ETN representation of the ‘fear index’ during Thursday trading. Thanks to this gain and recent turmoil, VXX is now up over 13% in the past week alone, giving investors who have sought refuge in this product a nice gain due to overall market volatility [see more on VXX's fact sheet].
One of the biggest ETF losers in Thursday trading was the PowerShares WilderHills Clean Energy Portfolio (PBW) which sank by 1.7% on the day. Today’s losses came thanks to worries over cuts to subsidies for clean energy programs in both Europe and the U.S. as well as lower oil prices. Crude is important because when the product declines it makes clean energy less competitive, lessening the demand of wind and solar power as alternatives. Meanwhile, talks of huge cuts in government spending both in the halls of the U.S. Congress as well as in major clean energy producing nations such as Spain, is making many investors very nervous over the near term prospects of the sector, especially if oil remains subdued. In fact, PBW is now down 5.5% over the past week and has lost more than 15.5% in the past quarter, underscoring how widespread the fears are over the sector in the short-term [see holdings of PBW here].
Disclosure: Long PBW.