Daily ETF Roundup: VXX Surges Over 20%, XLF Crashes On Global Bank Fears

by on August 18, 2011 | ETFs Mentioned:

Thursday’s markets seemed to add insult to injury, as major indexes had just regained the lost ground from last weeks sell-off, only to be shattered in trading today. The NASDAQ, as usual, was the hardest hit, sinking more than 5% while the Dow and S&P lost 400+ and 50+ points, respectively. Oil however, was a standout loser, as the price of crude plummeted nearly 7% to finish the day around $81.5 per barrel. The 10-year T-notes hit record low, dipping below 2% as markets went haywire on weak jobless claims and continued Europe fears. It seems that the past few weeks have seen the markets act as an investor mood ring rather than the actual value of the assets being traded, as the Dow is practically getting used to its 400 point swings.

Gold broke through the $1,800 per ounce barrier and then some, leaving many on the edge as to whether they should buy in for a coming surge, or if the precious metal is about due for a nasty correction. The market crash today was attributed to higher than expected jobless claims combined with continued fears over how the Euro-zone will be able to weather its current financial crisis. Volatility investors were treated today with a 40% surge in the VIX, bringing the “fear indicator” to some of its highest levels on the year [see also ETF Insider: Stocks Look For Support].

As such, the one of the biggest ETF winners on the day was the S&P 500 VIX Short-Term Futures ETN (VXX) yet again. The ETN finished the day with gains just shy of 21% (and that’s nothing compared to the 40% performance from the 2X leveraged VIX fund) as markets went into a frenzy. While the jobless claims certainly caused a stir, it seems that the European worries have trumped all other market data for the past few weeks. Today, ironically, also saw two key indicators of inflation rise; this coming after the Fed announced a two-year freeze on rates. While economists say they are not too concerned about the data, the possibility of rising inflation with frozen rates had some fearful for the future.

One of the biggest ETF losers on the day came from the Financial Select Sector SPDR (XLF). Investors are having 2008 flashbacks as the global financial sector seems to be on the edge of another full-blown crisis, with European banks leading the way. “An index of European banks dropped 6.7 percent and the KBW index of U.S. bank stocks slid 4.9 percent as fear grew of a possible contagion of any French crisis,” writes Rodrigo Campos. This ETF will likely remain under heavy scrutiny in the near future as investors will look for any excuse to abandon equities and flee to safe haven investments. Overall, XLF dropped 4.8% in today’s session [see also Four ETFs That Have Held Their Ground During Crisis].

Disclosure: No positions at time of writing.