SPY Fell by 0.34% in the Wake of the US Trade Report



Lackluster exports widen trade deficit

Tuesday, October 6, saw the release of the US International Trade Report for the month of August 2015. According to the report from the US Commerce Department, the trade deficit widened in August to $48.3 billion from $41.8 billion in July 2015. The deficit is up nearly 15.6%.

After strong rallies on Friday and Monday, the SPDR S&P 500 ETF (SPY) and the Direxion Daily S&P 500 Bull 2X ETF (SPUU) plunged by 0.34% and 0.71%, respectively, on October 6. Although the rise in imports implies the strong domestic economy, a significant fall in the country’s exports shows a reduction in the gross domestic product (or GDP) for the said period, which suggests that the rate hike could be postponed further. Because of the low interest rates, the US dollar weakened, and the PowerShares DB US Dollar Bullish ETF (UUP) fell by 0.68% on the day.

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Factors that affected imports and exports

The graph below shows the performances of the SPY, the SPUU, the US dollar, represented by the PowerShares DB US Dollar Bullish ETF (UUP), and oil, represented by the United States Oil (USO), for the month of August 2015. The graph depicts the slump in the oil prices in August against the US dollar’s strong streak during the period.

The rise in the imports of Apple’s (AAPL) new iPhone was one of the key contributors to the rising imports. However, the fall in the US exports was larger than the rise of imports and was dominant in the widening of the trade gap. The report cited the strengthening US dollar as the key reason behind the weakness in demand for US goods in foreign markets along with improving technologies in the emerging markets.

China is a major importer and exporter country to the US. The trade gap with China rose to $35.0 billion in August from $31.6 billion in the prior month. Thus, any economic turmoil in China has a significant impact in the US.

Also, the US’s major exports include oil, which has been going through a price slump during the period as the graph above shows. This has reduced the value of oil exports for the US. The major export-oriented companies of the US that have been impacted were International Paper (IP), Dow Chemical (DOW), DuPont (DD), and Weyerhaeuser (WY).

Market response to the report

The market showed a mixed response to the report. The speculation about a further delay in the rate hike and the weakened US dollar resulted in a rise in gold prices. The SPDR Gold Shares (GLD) gained 1% on the day.

In the next article, we’ll look at the sector performances of the S&P 500 Index on October 6.


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