After equities suffered through their worst loss in 6 months only 3 days ago, it’s only fitting that this was followed by the biggest gain for the year. Such is the world of a manilupated market environment by the Fed.
As a result, US stocks surged Wednesday with the S&P 500 and the Dow industrials adding the most for 2012 on speculation of a concerted global stimulus by central banks.
Sentiment was further boosted over reports that Germany is preparing a road map to recapitalize Spanish banks that would refrain from imposing external restrictions on the country’s banking sector. Sure, let’s see if they are really ignorant enough to part with potentially hundreds of billions of dollars to feed another bottomless pit.
In the US, markets were abuzz that the Federal Reserve may extend its Operation Twist program to keep borrowing costs low. Whether that even will have the desired affect is highly questionable. But that does not matter, what matters is that Wall Street expects a return of the spiked punch bowl; for better or for worse.
US Treasuries tumbled as demand for safe-haven assets eased with the 30-year yield hitting a two-month high after European Central Bank President Mario Draghi said EU policy makers are committed to intervene when required and kept interest rates unchanged.
In a separate development, the EU announced a EU-wide banking union plan to deal with future crises, separating the regions stricken governments from the banks. No specific details however, were forthcoming.
The Dow Jones Industrial Average (DJIA) zoomed 2.4 percent, the year’s biggest single-day gain. All the 30 components of the blue-chip index advanced, led by banking companies.
The S&P 500 Index (SPX) surged 2.3 percent with the energy sector fronting the index’s 10 business groups, and the NASDAQ Composite Index (COMP) jumped 2.4 percent to close at 2844.72.
Yield on the benchmark 10-year Treasury climbed ten basis points to settle at 1.65 percent for the day while 30-year bond yield jumped nine basis points to 2.73 percent in afternoon trade, New York time.
ETFs in the news:
As the relentless chatter of a fresh monetary stimulus by the Federal Reserve grew Wednesday, emerging market funds rallied, particularly those linked to the BRICS economies. The WisdomTree India Earnings Fund (EPI) remained among the day’s top gainers, vaulting 4.17 percent for the day.
The Van Eck Market Vectors Russia ETF (RSX) also soared, jumping 4.6 percent for the day. All the stock indexes of the BRICS economies had fallen sharply after the global sell off.
Plummeting oil prices due to the eurozone crisis had driven RSX down 30 percent last month from its March 2 peak. The Russian ruble had fallen 12 percent during the same period. Hence Russia stands to rebound strongly when measures to bail out the euro zone are actually successfully implemented and not just announced.
As US markets posted the year’s strongest gain today, the fear-tracking volatility index continued to slide for the second day. The ProShares VIX Short-Term Futures ETF (VIXY) led the day’s losers, shedding 7.20 percent for the day. As risk appetite increases, the VIX benchmark would continue to retreat. VIXY is trading closer to its 52 week-low now.
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