In what was pretty much a complete reversal of yesterday’s trading session, stocks rose across the board as investors bought up shares on better-than-expected jobless claims which finally fell below the key 400,000 mark. The Dow surged by 423 points, or just under 4.0% while the broader indexes turned in better performances, with gains of 4.6% for the S&P 500 and 4.7% for the Nasdaq. Strength was all around the market but financials and basic materials did especially well, led by a nearly 7% gain in Bank of America and a 5.4% surge for Exxon Mobil. Meanwhile, in commodity markets, most resources had a pretty solid day with the exception of the precious metal market as gold and silver both finished the day markedly lower. Grains and energy, however, both surged on the day as hopes for economic demand boosted oil and worries over weather sent wheat and corn soaring.
Today’s gains in the commodity markets were also partly due to a return to weakness for the U.S. dollar, as the currency lost against all three of its major world counterparts; the euro, the yen, and the pound. However, the dollar did appreciate against the Swiss franc, as members of the SNB suggested that a ‘temporary’ peg of the franc to the euro could be in the works. T-Bill trading was a little more calm across most maturity levels as the two year stayed below 0.2% but the 10 Year did see yields rise up to 2.34% to close the session. However, the real action was in long-dated securities as yields spiked thanks to weak demand in an auction for these high duration securities; yields rose to 3.82% from their previous close at just 3.54%.
One of the biggest ETF winners on the day was the State Street Financial Select Sector SPDR (XLF) which surged by 5.6% in Thursday trading. Today’s gains came thanks to easing fears over the health of some of the nation’s largest banks, as all four of the largest firms in the sector by market cap finished higher by more than 6% on the day. This surge came thanks to the encouraging news on the jobs front as unemployment claims hit 395,000, well below estimates which called for claims to be at 405k. This helped to signal to banks that maybe write-downs would not be quite so severe and that job prospects were picking up, helping to boost sentiment for the overall economy and the mortgage industry in particular. “Certainly the one-week move back below 400,000 is welcome news, and if sustained and extended could go a long way toward arresting fears that the economy is sinking back into recession,” said Joshua Shapiro, chief U.S. economist at MFR Inc. Thanks to this, XLF recovered nicely from yesterday’s slump, but the fund is still down 14% over the last five days [see holdings of XLF here].
One of the biggest losers in the ETF world was the iShares JP Morgan Emerging Bond Fund (EMB) which fell by 1.2% on the day. Today’s losses came as yields in many emerging market countries rose in light of lower demand for these bonds. Although many of these bonds have seen demand pick up thanks to ultra-low rates in the developed world, a return to risky assets today helped to push many out of the bond market and back into equities. For example, in the Brazilian government bond market, yields on the two and three year notes rose by more than 13 basis points each which similar gains were had in the longer dated issues of five and nine year varieties as well. Thanks to these losses, EMB is now down close to 2.8% over the past five day period but is pretty much flat from a year-to-date perspective suggesting that demand for emerging market bonds has fallen recently in light of global economic woes [see more charts of EMB here].
Disclosure: Long XOM.