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SPY, Dollar Up with Kansas City Fed Manufacturing Index’s Advance

Renee Blakely

SPY Up on Economic Data, EWU Weighed Down by Energy Stocks

SPY registered a 0.36% gain

On November 20, 2015, the SPDR S&P 500 ETF (SPY) and the Direxion Daily S&P500 Bull 3X ETF (SPXL) rebounded with 0.36% and 1.24% gains, respectively. The US stock market was buoyant on the day due to better-than-expected corporate earnings results, especially from the retail sector, due to the economic data released that morning.

According to the Kansas City Federal Reserve, the Kansas City Fed Manufacturing Index advanced to 1 from -1 for November 2015—the first positive reading since February 2015. The report pointed a strong bounceback in the exports orders with a reading of 7, compared with -10 for October. This suggested improvement for the factory sector for November.

The report contributed to investor confidence in the US economy. This lifted the stock market despite the fact that strong economic indicators could lead to the Fed’s intention to raise interest rates in December’s FOMC (Federal Open Market Committee) meeting. Historically, low interest rates tend to boost the equity markets.

Market’s response

Let’s look at the market’s response on November 20 to this economic data. The above chart presents the percentage changes in the performances of various market aspects.

Here, the US dollar is represented by the PowerShares DB US Dollar Bullish ETF (UUP), oil is represented by the United States Oil ETF USO), and gold is represented by the SPDR Gold Trust ETF (GLD). The total bond market is represented by the Vanguard Total Bond Market ETF (BND), and volatility is represented by the Volatility S&P 500 Index.

The dollar rose on the day due to the mixed, but generally positive, Kansas City Fed Manufacturing report. The volatility of the market declined as investors appeared confident about the US economy and more certain about the direction of the rate hike decision.

Oil dropped on the day as the rig count for the week ended November 20 fell, according to the Baker Hughes report. Precious and industrial metals fell on the day, leading to the fall in mining stocks. Newmont Mining (NEM), Freeport-McMoRan (FCX), and Alcoa (AA) fell 2.1%, 1.9%, and 0.8%, respectively, on November 20. Energy stocks Chesapeake Energy (CHK), Murphy Oil (MUR), and Denbury Resources (DNR) fell 5.9%, 5.0%, and 4.9%, respectively, on the day.

In the next article, we’ll look at the sector-wise performance of the SPDR S&P 500 ETF (SPY) on the day.

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