ETFs Hit Hard as DJIA, S&P, Emerging Markets Fall

Joel Anderson  |

Shares of major ETFs followed the markets lower on Thursday as a combination of disappointing economic data out of China and lower-than-expected earnings served to depress the Dow Jones, S&P 500, and Nasdaq, each of which lost more than 1 percent on the day, with the Dow and S&P both off close to 1.25 percent.

As a result, the down day rippled across the most actively traded ETFs, with the SPDR S&P 500 Index ETF ($SPY) down almost 1.25 percent, the iShares Russell 2000 Index ETF ($IWM) off about 1.15 percent, and the PowerShares QQQ ETF ($QQQ) dipping about 0.85 percent.

Leading the plunge appeared to be the leading financial companies. The SPDR Financial Select Sector Index ETF ($XLF) was off nearly 2 percent Thursday, likely driven down by decreasing share prices among some of its biggest holdings. Well Fargo (WFC) lost nearly 1 percent, JP Morgan Chase (JPM) was off almost 2.25 percent, Citigroup (C) fell almost 2.5 percent, Bank of America ($BAC) was down over 2.25 percent, and Goldman Sachs (GS) fell over 2 percent.

Signs that Chinese manufacturing has not only stopped growing but begun contracting drove stocks lower in China and served to pull down emerging market and China stock ETFs.

The iShares FTSE China 25 Index ETF (FXI) plunged almost 4.5 percent, and the iShares MSCI China Index Fund (MCHI) lost over 3.5 percent.

“The economic data today hurt investor sentiment and had an impact on all asset classes including stocks and bonds,” said West China Securities Co. analyst Wei Wei. “Liquidity concerns added to the economic worries.”

The HSBC Holdings Plc and Markit Economics Purchasing Managers Index (PMI) for China fell to 49.6 in January, down from 50.5 in December and below the 50.3 median estimate of a Bloomberg poll of economists. Any number over 50 shows expansion, so this could be a sign that China’s manufacturing industry is beginning to shrink.

“The China data continues to be persistently weak, we don’t view this as a one-off kind of number and we do view the P.M.I. series as especially credible,” said U.S. Bank Wealth Management senior equity strategist Jim Russell.

The ripple effect that negative economic news from China can have usually doesn’t stop with American stocks, and Thursday appeared to continue the trend.

Brazil stocks also fell Thursday, likely driven by Chinese data as well as well as a nearly 4.25 precent drop in shares for steel company Companhia Siderurgica Nacional (SID) . The iShares MSCI Brazil Index ETF ($EWZ) lost more than 3.25 percent.

And, with both Brazil and China falling so sharply, the iShares MSCI Emerging Markets Index ETF (EEM) was predictably off as well, which fell almost 3 percent.

Along with falling equities ETFs, there were other signs that market bears were investing in their preferred vehicles. The iPath S&P 500 VIX Short-Term Futures ETN (VXX) shot up nearly 5.75 percent. The VIX, which tracks the anticipated volatility of the S&P 500 over the next 30 days by options traders, is often termed the “fear index” and tends to rise when traders believe a downturn is coming.

Meanwhile, the US Dollar Index fell over 0.75 percent, leading to a rush into gold and gold futures. The price of gold shot up over 2 percent, with contracts for April delivery trading just behind them. As such, the Market Vectors Gold Miners ETF ($GDX) climbed over 2.75 percent.


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