Equity markets tanked on Tuesday after Euro zone debt woes were unexpectedly resurrected. Greek Prime Minister George Papandreou called the latest “bailout plan” to a referendum, renewing fears of a default and sparking a sell-off across global financial markets. “As if last week’s half-baked euro summit deal hadn’t left enough questions unanswered about the policy response to deal with the crisis, [the referendum announcement] adds a further, very significant layer of uncertainty to the outlook,” said Chris Scicluna, an economist at Daiwa Capital Markets in London.
The referendum move by the Greek Prime Minister spooked investors into worrying that the Euro zone would further destabilize as fears of a default resurfaced. Papandreou is looking to gain support for further austerity and economic liberalization measures, given the mounting public dissatisfaction with last weeks proposed three-pronged plan. Tensions spilled over onto Wall Street and investors were quick to take profits across all corners of the equity market, with the S&P 500 Index shedding 2.8% for the day [see New ETF Scorecards, In-Depth Analysis, And Ranking Of Every ETF]. Surprisingly, gold didn’t take on safe haven appeal amidst the market turmoil, the precious metal was fairly directionless, closing near $1,720 an ounce for the day.
One of the biggest winners on the day was the S&P 500 VIX Short-Term Futures ETN (VXX), which gained a whopping 14.5%. A cloud of uncertainty swept over Wall Street as investor confidence took an unexpected hit following news of a Greek referendum. This ETF fed off market weakness, which was largely fueled by escalating worries that Euro zone policymakers are still far from negotiating upon a comprehensive plan to restore stability in the financially fragile currency block.
The Financial Select Sector SPDR (XLF) was one of the biggest losers on the day, shedding 4.7%. Investors “jumped ship” from the financials sector as soon as word of the Greek referendum got out [see XLF Holdings]. Investors opted for “safer” fixed income exposure and were quick to take profits in “riskier” corners of the market, especially the financials, which had a stellar run-up last week [see PowerShares Rolls Out Four KBW Financial ETFs]. XLF has staged an impressive comeback in the month of October, gaining around 14%. However, from a year-to-date perspective, this ETF is still down 15%, showcasing the lack of investor confidence in this sector of the economy.
Disclosure. No positions at time of writing.