US stocks ended in the red Wednesday, losing more than one percent after reports suggested that the European Central Bank has rejected the recently nationalized Bankia group’s bailout plea.
The ECB issued a statement Wednesday stating it was not consulted and can’t recapitalize Spain’s fourth largest bank. US Treasuries soared as investors sought refuge in safe haven assets amid growing European turbulence.
Spanish and Italian bond yields soared as markets remained jittery over Spain’s ability to bail out its banks that may cost Madrid €100 billion.
The Dow Jones Industrial Average (DJIA) slipped 1.3 percent wiping off yesterday’s gains. All but one of the index’s 30 components ended lower for the day.
The S&P 500 Index (SPX) tumbled 1.4 percent with financials and energy faring the worst after adding more than one percent Tuesday on China stimulus hopes. All 10 business groups ended lower for the day.
The tech-heavy NASDAQ Composite Index (COMP) gave back 1.2 percent to settle at 2837.36 for the day.
Benchmark Treasury yield hit record lows as 10-year notes broke previous all-time low of 1.6714 percent set on September 23. 10-year yield plummeted 13 basis points to 1.61 percent at 4.27 pm New York time, the lowest since 1953. The 30-year bond yield tumbled 15 basis points to end at 2.70 percent, least since Oct.
ETFs in the news:
Bonds clearly emerged as investor-favorite for the day with the PIMCO 25+ Year Zero Coupon U.S. Treasury Index Fund (ZROZ) surging 3.97 percent for the day. The Barclays Capital U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index tracking product, the Vanguard Extended Duration Treasury ETF (EDV) came in second on the winner’s list, adding 3.96 percent for the day.
As a debt storm looms in Europe, the “flight to quality” is being played out in the US. The iShares Barclays Capital U.S. 20+ Year Treasury Bond gaining 2.54 percent for the day, closing at $126.14. The shorter term iShares Barclays 7-10 Year Treasury Bond Fund (IEF) also rose, adding 0.95 percent for the day.
As US-dollar continues to strengthen, the Deutsche Bank Long US Dollar Index (USDX) Futures Index hit a 52-week high today. The Invesco PowerSharesDB USD Index Bullish (UUP) also hit a new 52-week high as demand for safe haven currencies spiked.
The so-called fear-tracking Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX) surged as markets turned choppy, surging 6.92 percent. This product is witnessing heavy activity as markets continue to slide on euro worries.
Among the day’s top losers, the iShares MSCI Spain Index Fund (EWP) tumbled 3.41 percent, touching a new 52-week low. This ETF is in fact trading at its lowest level since 2003. The developed foreign markets tracking iShares MSCI EAFE Index Fund (EFA) slipped 2.36 percent while the iShares MSCI Emerging Markets Index Fund (EEM) lost 1.73 percent.
Our Trend Tracking Indexes (TTIs) retreated as well with the domestic version remaining on the bullish side by +2.22%, while the international one headed deeper into bear market territory (-4.97%).
Again, it’s critical that your track your sell stops and execute them should the European debt disaster shift into overdrive.
Disclosure: Holdings in UUP