Despite yet another shaky start, U.S. equity markets managed to push higher throughout the day, climbing back up to breakeven levels to close out the week. Both the S&P 500 and the Nasdaq finished in positive territory, posting marginal gains while the Dow slid by a modest seven points on the day. Commodities also rose across the board as both gold and oil gained roughly 0.4% on the day and soft commodities again outpaced their more durable counterparts; sugar was up close to 5% while coffee gained 4% in Friday trading.
Today’s biggest news came from Europe, where a large downgrade of Irish debt spooked the markets and further added to the woes from earlier in the week. Due to this downgrade and fears over a crisis brewing in both Spain and Portugal, many investors bought up precious metals and other safe havens such as T-Bills in order to weather the storm.”The euro zone crisis will still be a major focus for the next two or three months,” said Mark Bon, fund manager at Canada Life. “The market is a little disappointed about the European Union’s long-term bailout plan. It doesn’t seem to address the current issues. It set out a system for 2013 – we need something for today.”
One of the biggest winners on the day was the Vanguard Long-Term Bond Index Fund (BLV), which rose by 1.4% in Friday trading. Today’s gains helped to reverse the recent trend of weakness in the Treasury market as investors bought up American sovereign debt in order to avoid the brewing euro zone debt crisis. “Moody’s downgrading Ireland five notches and reviewing the credit of Greece and Belgium for a possible downgrade have kept the bid in Treasurys,” said Thomas di Galoma, head of U.S. fixed-income trading for Guggenheim Securities. This helped to push the 10-year Treasury yield down by 10 basis points from a level of 3.44% to 3.34%, an impressive feat considering that it came in spite of a $2 billion bond purchase by the Fed [see fundamentals of BLV here].
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One of the biggest losers in the ETFdb 60 was the Vanguard European ETF (VGK), which tumbled by 0.9% on the day. Today’s losses came from the continued turmoil in Europe and the lack of a solid plan by member states to deal with future crises. As a result, European markets were down across the board with the Spanish market suffering a 1.1% decline and the Italian market sinking by 1.3%. “The summit has not really produced what some had hoped we might see. While they’ve all agreed it’s important to have a crisis mechanism in place, the Germans and probably the French too are reluctant to commit more funds,” said Mike Lenhoff, chief strategist at Brewin Dolphin [see holdings of VGK here].
Disclosure: No positions at time of writing.
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