SPY falls 1.5%
The SPDR S&P 500 ETF (SPY) and the Direxion Daily S&P 500 Bull 3X ETF (SPXL) ended their three-day rally with the Fed’s decision to raise the key interest rate. SPY and SPXL fell 1.5% and 4.4%, respectively, in yesterday’s trade. The fall of these ETFs significantly washed away their earlier gains. The rise of US stocks after the rate hike decision came to an end, and investors focused their attention on falling oil prices.
The graph above gives a snapshot of the market’s performance yesterday. The US dollar is represented by the PowerShares DB US Dollar Index Bullish Fund (UUP), oil is represented by the United States Oil Fund LP (USO), and gold is represented by the SPDR Gold Shares Trust (GLD). The Treasury bond market is represented by the iShares 20+ Year Treasury Bond ETF (TLT), while volatility is represented by the Volatility S&P 500 (^VIX).
US stocks represented by SPY and SPXL fell in yesterday’s trade. With a tightened monetary policy, the US dollar rose against other major world currencies like the euro and the Japanese yen.
The strengthened US dollar adversely impacted dollar-denominated commodities like oil and gold. Gold lost its luster to yield-bearing assets and bonds. Yields on long-term Treasury bonds dropped as the Fed signaled a gradual pace for further rate hikes. Yields and bond prices are inversely related.
Oil prices fell further, with US crude oil falling 1.6% to settle at $34.96 per barrel and Brent oil falling 0.9% to close at $37.06 per barrel. The oil supply glut continued to hurt energy stocks. Williams Companies (WMB), Denbury Resources (DNR), Marathon Oil Corporation (MRO), Nabors Industries (NBR), and Newfield Exploration Company (NFX) fell 8.2%, 8.1%, 7.3%, 5.6%, and 5.3%, respectively, in yesterday’s trade.
In the next part of this series, we’ll look at how SPY’s component sectors performed yesterday.