Although U.S. markets started the day on a down note after China’s bearish GDP release, they surged in the final hours on a report that Germany and France reached an agreement to boost the EFSF and recapitalize banks. Thanks to this, the Dow and the Nasdaq both finished the day up by about 1.6% while the S&P 500 saw gains of 2% on the session. The biggest gains were in the financial and basic materials sectors while tech was dragged down by weakness in IBM and health care saw a slump in health plan firms such as UNH and WLP. In commodity markets, gold, which at one point was trading around $1,628/oz., recouped a great deal of its losses, finishing the session down just $12/oz. or at the $1,665 level. Meanwhile, oil saw gains of nearly $2/bbl. as the European relief program sparked hopes of demand for the important fuel. Other commodities, however, weren’t as lucky as most softs fell although pockets of gains– such as those in the corn, sugar and soybean meal markets– came through to make it a relatively balanced day in the asset class.
Currency trading was also volatile on the day as the U.S. dollar index extended its losses, falling to just above $77. The dollar lost against the euro and was pretty much flat against the pound and the yen as well. However, the dollar did see some weakness against the Aussie dollar and the Canadian dollar as both of those currencies jumped on the day putting pressure on the greenback in Tuesday’s trading session. Fortunately, this weakness in dollars didn’t trickle into bonds too much as yields rose slightly, finishing the day at 2.18% for the ten year and 0.28% for the two year.
One of the biggest ETF winners on the day was the Financial Select Sector SPDR (XLF) which added 4.8% in Tuesday trading. Today’s surge in the space came as investors rejoiced the hopes from Germany and France to boost the EFSF as well as plans to recapitalize banks across the continent with an expanded bailout program. Additionally, investors also cheered the results of financial giant Bank of America (BAC) which released earnings before the bell today. The company swung to a profit for the most recent quarter, posting earnings of 56 cents a share or $6.2 billion. Considering that in the year ago period the firm had a loss of $7.3 billion and many consider BAC to be one of the weaker large banks, this helped to boost sentiment for shares of the broad financial sector as well as those of the Charlotte-based company. In fact, BAC gained over 10% on the day, marking a nice turnaround for the stock and one that helped to buoy similar firms in XLF during Tuesday trading [see holdings of XLF here].
One of the biggest losers in the ETFdb 60 was the iPath S&P 500 VIX Short-Term Futures ETN (VXX) which slumped by 3.7% in the session. Today’s losses were driven by the late session report out of Europe on the agreement between France and Germany over expanded bailout programs. The two economic giants appear to be ready to boost the euro zone rescue fund up almost five-fold to nearly two trillion euros, enough to backstop all but the biggest of economies in the region. “This rally seems different, and the news and actions out of Europe seem more substantial, the news out of Europe has taken the fear of a 2008-like financial crisis off the table, although certainly there are still lingering issues,” said Jeff Kleintop, chief market strategist for LPL Financial. Thanks to this declining level of risk, many investors saw little need to hold onto this ETN representation of the ‘fear index’ in Tuesday’s trading session, helping to push VXX lower once again for the day [see charts of VXX here].
Disclosure: No positions at time of writing.