U.S. equities and other riskier assets are in rally mode in the first trading session of 2013 after lawmakers finally got around to agreeing on legislation that steered the U.S. away from the dreaded fiscal cliff. News that a deal was in the works ignited a rally on Monday while news that the cliff will be dodged has done the same today as the Dow Jones Industrial Average is up about 230 points at this writing while the Nasdaq Composite is sitting on a gain of 2.3 percent.
The tenor of Wednesday's U.S. trading session is clearly risk on, so much so that before 10:30 AM Eastern time, the overall value of equities and ETFs traded was $73 billion, according to data provided by ETF execution firm WallachBeth. New York-based WallachBeth noted that only trading day in all of 2012 December options expiration saw equity value traded exceed $70 billion in the first hour of trading.
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In a note to clients, WallachBeth Director of ETF Execution Services Chris Hempstead highlighted intense buying activity "on the ask" in several marquee broad market ETFs. Buying on the ask could be described as "panic buying" to some extent as traders that are willing to buy on the ask price being shown are indicating they are willing to pay up to acquire shares of a particular stock or ETF. The more times the ask price is hit, the more intense a rally becomes.
Hempstead said WallachBeth has seen intense "ask buying" in the PowerShares QQQ (NASDAQ:QQQ), commonly referred to as the Nasdaq 100 tracking ETF, today. Other popular broad market ETFs where WallachBeth has seen unusual buying activity include the $38.8 billion iShares MSCI EAFE Index Fund (NYSE:EFA) and the $3.2 billion iShares MSCI ACWI Index Fund (NASDAQ:ACWI).
Despite Wednesday's grab for riskier assets, the U.S. government still has issues to tackle, including the debt ceiling in a few short weeks.
"With the deal made in Washington leaving most economists scratching their heads we would cautiously assume that this unusual volume and skew is not necessarily here for the long run," said Hempstead in the note. "A drop in volume and liquidity as we approach the next big near term media buzzword debt ceiling' would not come as a surprise."
Even with the debt ceiling issue inching its way into the headlines before the fiscal cliff was solved, traders are still content to embrace high-beta sectors today. WallachBeth, which provides ETF execution services to clients such as Registered Investment Advisors and trading desks, said "ask buying" has been intense in sector funds such as the Financial Services Select Sector SPDR (NYSE:XLF) and the Materials Select Sector SPDR (NYSE:XLB).
Buyers have also stepped into the Vanguard MSCI Emerging Markets ETF (NYSE:VWO), the largest emerging markets ETF by assets, in a meaningful way, according to WallachBeth. Up almost two percent on the day, the Vanguard Total Stock Market ETF (NYSE:VTI) has seen a noticeable uptick in volume while the SPDR S&P Homebuilders ETF (NYSE:XHB), one of 2012's top sector funds, has seen buyers take the ask to the tune of a 2.6 percent gain, according to WallachBeth data.
Even with all that ebullience, a cautious approach may be best over the near-term in Hempstead's eyes.
"...2013 headlines and market sensitivity should get right back on the spinning wheel of media buzzwords' bandwagon with the top flash cards being: Debt Ceiling and US credit rating European Sovereign Debt civil unrest in the Middle East--The Iran and Israel relationship North Korea Japan's woes extreme drought extreme flooding and of course China growth."
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