European markets struggled to gain much traction as Italian debt woes remain far from resolved, although the uncertainty surprisingly did not spill over onto Wall Street. Domestic equity indexes worked their way higher, bolstered by positive economic data and improving investor confidence in the U.S. economic recovery. The Nasdaq led the way higher with a robust 1.09% gain on the day, while the Dow Jones Industrial Average lagged behind, clinching a minimal 0.14% gain. Crude oil prices climbed alongside equities, settling just below $100 a barrel for the day. Gold on the other hand was fairly directionless, ending the session higher by just a few points right around $1,780 an ounce [see ETF Insider: Expect More Volatility].
Optimism on Wall Street was fundamentally justified as U.S. retail sales during the month of October surpassed analyst expectations. Domestic retail sales rose a seasonally adjusted 0.5% last month, surpassing estimates of 0.3% growth, helping restore investor confidence in the U.S. economic recovery [see How ETF Investors Can Save $415 Million]. Millan Mulraine of TD Securities said “the economy appears to be clearly on the right track and moving in the right direction”.
The State Street Technology Select Sector SPDR (XLK) was one of the biggest winners on Tuesday, gaining 1.35% on the day. The tech sector managed to stage a modest rally as the better-than-expected retail sales report showed that the biggest increases in consumption last month came from electronics and appliance purchases [see XLK Scorecard & Ranking]. Consumer spending online also increased; purchases from internet companies and mail catalogs rose 1.5%, posting the biggest gain since January.
Investor sentiment improved as domestic equity markets were able to focus on the positive economic data at home, rather than the worrisome debt situation overseas. Likewise, equity indexes gaining on improving confidence while the S&P 500 VIX Short-Term Futures ETN (VXX) was one of the worst performers, shedding 1.10% on the day [see our Low Volatility ETFdb Portfolio]. Chief Investment Strategist at Commonfund, Michael Strauss, said in a telephone interview, “We’ve got these challenges in Europe, but the bottom-line in the U.S. is that we have modest economic growth. The economic numbers are providing a shock absorber for the market”.