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After Its Early Gains Fade on China Concerns, SPY Ends Low

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Jan. 11 2016, Updated 3:16 p.m. ET

SPY slid 1.1%

The SPDR S&P 500 ETF (SPY) and the Direxion Daily S&P 500 Bull 3X ETF (SPXL) fell 1.1% and 3.3%, respectively, on Friday, January 8, 2016. The SPY ETF had a roller coaster ride last week. Its trailing five-day yield was -5.9%. Unlike the past trends, at the start of the new year, the US markets followed a downward trend owing to concerns for performances by global economies—especially China. Chinese data continually pointed to a slowdown coupled with stock market volatility. Chinese data affected the world’s stock markets last week.

The following graph shows the market responses on January 8.

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Here, the US dollar is represented by the PowerShares DB US Dollar Bullish ETF (UUP), oil is represented by the United States Oil Fund (USO), and gold is represented by the SPDR Gold Trust (GLD). The Treasury bond market is represented by the iShares 20+ Year Treasury Bond (TLT). Volatility is represented by the Index, Volatility S&P 500 (^VIX).

As we saw week (January 4–8), US investors prefer safe havens like gold and Treasury bonds over risky assets like US equities. So, on Friday, the prices of these bonds rose as market volatility continued to rise. Therefore, bond yields fell as bond prices and yields have an inverse relationship.

Oil continues to drop down

Even after the Baker Hughes rig count report for the week ended January 8 showed a dip in the number of US oil rigs, the commodity continues to weaken. Now the supply glut issue is not solely responsible for the drop in oil prices. The fear of a slowdown in the Chinese economy persists. Investors are still not sure about the extent of this slowdown and China’s demand for fuel consumption. So the energy stocks still struggled on January 8. Refining and marketing stocks Valero Energy (VLO), Tesoro (TSO), and Marathon Petroleum (MPC) tumbled 5.3%, 5.1%, and 3.8%, respectively, on the day.

Let’s look at the energy sector’s performance and the US employment situation in our next article of this series.

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