American equity markets were crushed in Thursday’s trading session as fears of a double-dip recession hit the market hard. The Dow finished the day down just over 3.5% while the broader indexes managed to post slightly better days, losing 3.3% for the Nasdaq and 3.2% for the S&P 500. Obviously, losses were pretty bad all around, but financials and basic materials definitely stuck out on the downside, while some consumer and health care names held up better than most but were still down at least 2% across the board. In commodity markets, it was a sea of red as investors scrambled for dollars and jumped out of risky commodities in droves. Gold fell by close to $70/oz., down below the $1,740 mark, while oil plunged, sinking by almost 6.5% or close to $5.60/bbl. In addition to these headline products, copper plunged by close to 8.7%, while silver crashed by nearly 11.3% on the day. Things weren’t much better in the grains market as losses of between 3.5% and 6.0% afflicted everything from sugar to wheat.
The only bright spot in all this turmoil came in the U.S. dollar index as the greenback rose markedly against most of its major rivals. The dollar gained by close to a cent against the euro, and almost 1.5 cents against the pound, although losses were seen against the yen once again. The biggest gains, however, were seen against the somewhat volatile ‘commodity currencies’ especially the Canadian dollar and the Aussie dollar. The U.S. dollar rose by 1.9% against the loonie and 2.8% against the Aussie, capping off a great day for the global reserve currency. Meanwhile in Treasury bonds, Two Year notes rose again thanks to Operation Twist while investors sought more safety in longer term bonds, pushing yields of the Ten Year down to below the 1.75% mark, a nearly 14 basis point decline on the day.
One of the biggest ETF winners on the day was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which surged by 10.2% in Thursday trading. Today’s impressive gains, which again came on above-average volume, were largely a result of the market panic and investor realization that no more stimulus would be forthcoming from the Federal Reserve. Bernanke disappointed many traders yesterday by not implementing more easing measures; he only offered to shift the current portfolio to longer-term securities, a move that could have limited impact on demand. Apparently, Fed hopes were the only thing keeping the market upright and now many are fearing a double dip recession in markets around the globe. Thanks to this, demand for this ETN representation of the ‘fear index’ was extremely high today, helping to push VXX up to a 19.9% gain so far this week [see more fundamentals of VXX here].
One of the biggest ETF losers in Thursday trading was the iShares MSCI South Korea Index Fund (EWY) which declined by 8.6% on the day. A number of factors helped to send this popular product lower, including the poor American economic situation, South Korea’s role as a proxy for emerging markets, and worries of slumping Asian demand as well. The overall makeup of EWY didn’t help matters either as the fund is heavily exposed to cyclical stocks as the top three sectors are technology, consumer discretionary, and basic materials. Thanks to this, some of the fund’s biggest components helped to lead EWY sharply lower; LG Display and KB Financial were both down by more than 9.6% while steel giant POSCO fell by 8.2% in U.S. trading as well. All in all, it was a pretty rough day for Korean securities as this fund traded on nearly triple its average daily volume helping to push shares of the multi-billion dollar fund down 12.5% over the past five days [see holdings of EWY here].
Disclosure: No positions at time of writing.