American equity markets were mixed to close out the week as earnings and a debt deal in Greece weighed on stocks. The Dow finished the day lower by 0.3%, dragged down by a weak report from CAT, while the S&P 500 (up 0.1%), and the Nasdaq (up 0.9%), both finished in the green for the day. Commodity markets managed to rally for the most part, as most resources finished the day higher. Winners were led by a 5% gain in sugar futures, while losers saw the biggest declines from the cocoa market, which lost over 3.5% on the day. Currency trading remained volatile, as the U.S. dollar strengthened against the euro and the pound slightly, but lost marginally against the Aussie dollar. Despite ongoing debt ceiling issues, traders have kept both the two and the ten year bonds at levels of roughly 3% and 0.4%, respectively, most likely waiting until further information is released to make a move one way or another.
One of the biggest winners in the ETFdb 60 was the PowerShares DB Base Metals Fund (DBB) which gained 1.4% to close out the week. Today’s gains were largely due to a rally in aluminum prices which make up roughly one-third of the basket of DBB. “Aluminium has been very strong,” said Standard Bank analyst Leon Westgate. “Fresh buying interest has been the main driver, although the triggering of stops has exacerbated the scale of the move.” Nevertheless, zinc and copper also saw prices rise for the session as well, boosted by hopes of greater demand for these key metals after the EU meeting in Brussels. Despite these gains, DBB has been relatively mixed over the short term as the fund has lost about 40 basis points in the past two weeks but has gained close to 7% in the past one month period. As a result, investors could see further volatility in the days ahead for this fund, especially if tensions remain high in both Europe and the U.S. regarding their respective debt situations [see more on DBB's fact sheet].
One of the biggest losers on the day was the Industrial Select Sector SPDR (XLI) which lost about 1% in Friday trading. Today’s losses were largely due to a weak earnings report from industrial giant Caterpillar (CAT), which managed to beat on revenues but failed to match earnings expectations. The Illinois-based firm posted earnings of $1.72 a share on revenues of $14.2 billion compared to expectations of $1.75 in profits on $13.2 billion in sales, helping to send the company’s stock down almost 6% on the day. While the earnings miss was disappointing, investors likely focused in on the company’s lukewarm guidance for the rest of the year highlighted by relatively unfavorable comments by the company’s CEO regarding the American economy. Since CAT makes up roughly 5% of XLI and is one of the fund’s top four components, this report permeated the rest of the sector and pushed many industrials down for the day on what turned out to be above average volume for the popular fund [see holdings of XLI here].
Disclosure: No positions at time of writing.