Equities see-sawed and edged lower Wednesday as the Federal Reserve extended its much anticipated Operation Twist program but stopped short of initiating a more aggressive direct bonds purchase program, which was the exact possibility I discussed in last night’s post.
As the chart above shows, the major indexes went on a wild ride, but held up surprisingly well. Longer term 30-year bonds erased early losses while shorter term Treasuries retreated after the central bank lowered growth forecasts for the largest economy and said it was prepared to do more to support the economy, hinting at more aggressive measures in the future if the labor markets failed to improve.
The Dow Jones Industrial Average (DJIA) closed off 13 points, despite losing more than 94 points in early trade. Within the Dow, 16 of the 30 companies closed higher.
Snapping its four day long winning streak, the longest since late May, the S&P 500 Index (SPX) shed 2 points, with financials and technology fronting the day’s winners while utilities and natural resources led the laggards among its 10 business groups.
Yield on the 10-year benchmark Treasuries climbed three basis points to 1.65 percent, after German Chancellor Angela Merkel said the region’s rescue funds may buy sovereign bonds from the secondary markets, ruling out direct purchases. Yield on 30-year bonds closed one basis point lower at 2.72 percent after rising as much as 6 basis points, in late afternoon trade.
ETFs in the news:
The iShares MSCI Spain Index Fund (EWP) gapped up 1.85 percent, spiking 2.3 percent during the day’s trade to touch its 50-day moving average. The single-currency union witnessed positive developments throughout the day with German Chancellor Angela Merkel saying the EFSF and the ESM may buy sovereign bonds from the secondary markets in future.
Spain later claimed it would not require a full-blown bailout despite its banking sector alone seeking €100 billion in bailout funds and sovereign borrowing costs hovering around historic highs. The yield on 10-year Spanish bonds dropped to 6.8 percent on the announcement.
Can anything really be believed that comes out of the mouths of European politicians? I think not, and for more on the Euro Ponzi scheme, here is Nigel Farage, leader of the UK Independence party, with some outspoken as well as always entertaining comments:
Elsewhere, Greece’s pro-bailout New Democratic Party formed a coalition government with PASOK and the Democratic Left party, capping Sunday’s electoral win, all of which proved positive for EWP.
The Invesco PowerShares WilderHill Clean Energy Portfolio (PBW) also featured among the top gainers, adding 1.14 percent as the alternative energy space rallied on monetary easing hopes. This sector depends heavily on government subsidies and stands to benefit from stimulus measures.
ProShares VIX Short-Term Futures ETF (VIXY) led the day’s laggards, losing 4.17 percent for the day as the CBOE Volatility Index slumped 6.20 percent. At 17.24, the index indicates improved risk appetite. VIXY had surged in early afternoon trading, but sentiments improved following Bernanke’s press conference.
Our Trend Tracking Indexes (TTIs) changed only slightly from yesterday’s close, and I will post the exact numbers tomorrow night.
Disclosure: No holdingsContact Ulli