Tuesday was a pretty rough day for markets all around as weak top line growth from bellwether Alcoa sent stocks and commodities reeling. Both the Dow and the Nasdaq fell by about one percent in the session while the S&P 500 sank by a more modest 0.8%. Commodity markets were especially weak on the day as gold tumbled roughly 1% off its near record level and oil was crushed, falling by more than $4/bbl. to below the $106 mark. Soft commodities also tumbled as the grain market saw losses in excess of 2% for all of the major crops and a near 5% tumble for Chicago Wheat. Thanks to this weakness in commodities and stocks, investors rushed for the safety of T-Bills, which saw large gains on the day. Yields fell significantly across most maturity levels with the 10-Year yield falling by 0.09% and the Two-Year tumbling by 0.08% down to 0.75% to close out the day.
One of the biggest winners in the ETFdb 60 was the iPath S&P 500 VIX Short-Term Futures ETN (VXX), which rose by 0.8% on the day. This fund was one of the few beneficiaries from the market’s slide in Tuesday’s session; traders piled into this product, which represents an investment in the ‘fear index’. Among the main concern for many investors was the nuclear crisis in Japan, which was just upgraded to the highest possible level or on par with the Chernobyl disaster. This, along with fears over manufacturing in the U.S. thanks to weakness from aluminum giant Alcoa, helped to push commodities and resource intensive companies sharply lower on the day, increasing demand for alternative assets such as VXX. Despite today’s modest rise, VXX is still down significantly on the year as the devastating effects of contango have ripped this fund apart. VXX is now down more than 52% over the past 26 weeks and has lost close to 7% in the past two weeks alone. However, the fund has gained 0.3% in the past week suggesting that volatility may be on the rise in the near future [see more charts of VXX here].
One of the biggest losers in Tuesday trading was the Energy Select Sector SPDR (XLE), which dove 3.0% in the session. These sharp losses were largely the result of severe weakness in the price of crude as most components of XLE are major oil companies who dependent on high oil prices for their revenues. In fact, three of the fund’s top four holdings are integrated oil majors– Exxon, Chevron, and Conoco– and together they make up more than one-third of the fund’s total assets. These all experienced broad weakness as not only did WTI crude fall on the day– it was down almost 3.7%– but other types of oil products were down significantly as well; Brent fell by 2.7%, heating oil sank by 2.7%, and gas oil futures plunged by over 4% [see holdings of XLE here].
Disclosure: No positions at time of writing.