Leading ETFS (SPY, QQQ) Fall on Sneakily Dreary Economic News

Joel Anderson  |

Modest market losses in the wake of the recently released economic data for the United States pushed down major equities ETFs. The Dow Jones Industrial Average was off nearly half a percent, the S&P 500 lost almost three-quarters percent, and the Nasdaq plunged over 1.25 percent. This lead to losses for the leading ETFs, with the SPDR S&P 500 ETF ($SPY) losing just over 0.75 percent, the PowerShares QQQ ETF ($QQQ) down over 1.25 percent, and the iShares Russell 2000 Index ETF ($IWM) falling just over 1 percent.

The response to the economic data could show many investors shifting to a risk-off environment in anticipation of greater volatility. The iPath S&P 500 VIX Short Term Futures ETF (VXX) gained over 1.5 percent, demonstrating anticipated volatility on the part of traders, and iShares MSCI Emerging Markets Index ETF (EEM) , which is typically viewed as a higher risk/higher reward trading option that hinges on sunny economic outlooks, fell almost 1.5 percent.

At first blush, the numbers released by the Commerce Department on Thursday appeared to look pretty strong. The US economy grew at an annualized rate of 2.8 percent in the recently-ended quarter, making it an increase over the 2.5 percent pace from last quarter and well ahead of the expected 2 percent growth economists expected in a Dow Jones survey.

However, much of that growth can be attributed to businesses stocking their shelves, with growth coming in at just a 2 percent pace if one excludes increasing inventories. What’s more, the rate of consumer spending grew at just 1.5 percent, making it a tie with for the lowest spending growth since 2009. Together, these two considerations appear to have spooked some traders and investors regarding economic growth.

“It is deceptively weak,” said Alan MacEachin, corporate economist at Navy Federal Credit Union, of the economy. “You drill down below the surface, and you can see what’s going on.”

The relatively weak economic data might also lead to some bounce-back, though, as it seems likely to continue delaying any tapering of the Federal Reserve’s quantitative easing program.

"Final household and business demand remain notably soft," said Peter Newland of Barclays (BCS) in a note to clients. "Policymakers will likely want to see a decisive pickup in the latter two before concluding that overall growth is on a sustainably stronger path."

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