Traders failed to see clumps of green shoots in Wednesday's Beige Book report from the Fed, which offered a mixed view of economic conditions that weighed on stocks and left most exchange-traded funds adrift. Major indexes continued to dip after the release of the report on the economy, which said the rate of economic decline had slowed but that conditions remained soft.
The Beige Book comes two days before the Commerce Department is scheduled to release its advanced reading on second-quarter gross domestic product. Taken together, these reports should offer traders a sense of how the economy is performing on the local and national levels.
In corporate earnings, Time Warner (TWX) beat expectations and affirmed its full-year guidance, but said lower revenues for publishing, AOL and filmed entertainment more than offset growth for the networks segment. ConocoPhillips (COP) reported falling profits, with shares dropping 76% from a year ago on lower oil prices. General Dynamics (GD) posted nearly flat earnings but boosted its forecast, while Medco Health Solutions (MHS) reported strong earnings and shares rose on an improved outlook. Crude traded on the Nymex closed down $3.88 at $63.35 a barrel.
For a detailed rundown on Wednesday’s trading session see our market story.
Among unleveraged ETFs, the SPDR KBW Regional Banking fund (KRE) avoided the market slide, closing up 1.3%. The broader SPDR KBW Bank fund (KBE) gained 1.0%.
Oil prices dropped sharply in Wednesday trading , knocking back shares of the United States Oil fund (USO) 6.4%. Lower metals prices hit the SPDR S&P Metals & Mining fund (XME), pushing shares back 4.2%. The ripple effect on the Shanghai Composite Index also pressured the iShares FTSE/Xinhua China 25 Index fund, dropping shares 3.8%.
Data Point
Sales of leveraged exchange-traded funds are "under review" at Morgan Stanley Smith Barney, the recently formed is a joint venture of Morgan Stanley (MS) and Citigroup (C). Last week, UBS Wealth Management Americas, the U.S. brokerage business of UBS (UBS), suspended purchases of the ETFs, because they are best used for short-term trading, rather than longer investment horizons. Last month, the Financial Industry Regulatory Authority cautioned brokers and registered investment advisers about their fiduciary duties when selling inverse and leveraged ETFs, which it said are typically unsuitable for retail investors.
Ken Leon and Tom Graves, analysts with the ETF Research team at Standard & Poor’s, said the Morgan Stanley Smith Barney announcement underscored the idea that these ETFs are not a ‘buy and hold’ investment. "They are not intended to be used by, and are not appropriate for, investors who intend to hold positions in an attempt to generate returns through time,” they said.
Launching Pad
WisdomTree Investments filed a request with the Securities and Exchange Commission to launch an exchange-traded fund based on closed-end bond funds. The prospectus for the WisdomTree CEF Fixed-Income fund would be based on an index of 75 closed-end bond funds that invest in taxable U.S. and international issues. The funds would include both investment-grade and high-yield debt. WisdomTree did not include pricing information in the prospectus.
Earnings and Conference Calls
Alcatel-Lucent, AmeriSourceBergen, Aon, Apache, Arch Chemicals, AstraZeneca, Automatic Data Processing, Avery Dennison, Avon, Barrick Gold, Becton, Dickinson, Brunswick Corp., Cabela's, Cablevision, Canadian Pacific Railway, CEC Entertainment, Cepheid, CGGVeritas, CH Energy Group, Charles & Colvard, Cigna, Colgate-Palmolive, Covidien, Cummins, Dolby Laboratories, Double Eagle Petroleum and Mining, Dow Chemical, Duke Realty, Eastman Kodak, Evergreen Solar, Expedia, ExxonMobil, First Solar, Franklin Resources, Genworth Financial, Goodyear Tire & Rubber, Helmerich & Payne, Horizon Financial, Ingram Micro, International Paper, Iron Mountain, Kellogg, Kimco Realty, Las Vegas Sands, Level 3 Communications, MarineMax, MasterCard, McAfee, MetLife, Monster Worldwide, Morningstar, Motorola, Mylan, Newell Rubbermaid, Noble Energy, NTT DoCoMo, NYSE Euronext, OfficeMax, Olympic Steel, Oppenheimer Holdings, Oshkosh Corp., Palomar Medical Technologies, Parker Hannifin, PerkinElmer, Pitney Bowes, Provident Financial Holdings, RealNetworks, Reed Elsevier, Regal Entertainment, Republic Airways, Republic Services, Revlon, Rockwell Collins, Sony, SourceForge, Taleo, Taylor Capital, Tennant, The Brinks Company, The Hanover Insurance Group, The Travelers Cos., Tyco International, Varian Semiconductor, Walt Disney, Waste Management, WisdomTree Investments, Wynn Resorts
Economic Data
8:30 a.m. Initial Jobless Claims
10:30 a.m. EIA Natural Gas Report
A look at how the industry's most popular ETFs did on Wednesday:
| Symbol | Net Assets | Price | 52 Week High | 52 Week Low | Volume |
|---|---|---|---|---|---|
| SPY | 63,739 | 97.79 | 130.7 | 68.13 | 193,645,430 |
| EFA | 29,392 | 48.7 | 67.37 | 32.16 | 19,732,091 |
| EEM | 28,449 | 34.75 | 43.16 | 19.12 | 52,931,979 |
| GLD | 33,655 | 91.2 | 97.24 | 70.14 | 9,674,061 |
| IVV | 18,337 | 97.93 | 130.92 | 68.24 | 3,677,287 |
| QQQQ | 14,025 | 39.33 | 48.32 | 25.51 | 125,785,280 |
| IWF | 9,479 | 43.46 | 55.45 | 30.49 | 2,412,927 |
| SHY | 7,044 | 83.54 | 85 | 82.65 | 635,607 |
| VTI | 10,258 | 49.24 | 65.56 | 33.75 | 1,073,294 |
| IWD | 7,068 | 50.01 | 70.64 | 34.22 | 1,611,155 |