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Tensions in Middle-East generate significant volatility

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Tensions in Middle-East generate significant volatility

The stock market has become an index driven trading environment as tensions in the Middle-East has generated significant volatility.  The VIX volatility index moved above 17% for the first time in the past three months rallying more than 30% over the past two trading sessions.  Stocks moved higher at the open and remained positive throughout the trading session.

The focus for investors ahead of the US Labor Day holiday has turned toward tensions in Syria and away from the discussion of tapering which has enjoyed the headlines since the beginning of the summer.  Most still believe there is a chance that the Federal Reserve will reduce some of its bond purchases despite recent weakness in economic data that has seen the 10-year yield drop more than 16 basis points over the past week.  This week’s worse than expected Durable Goods orders, shows that US economic traction is relatively soft.

Asian markets continued to created headwinds for its US counterparts falling nearly 1.5% for both the Nikkei and the Shanghai indices.  Emerging markets stocks have been drubbed in recent days, with the Indonesian market falling 15% over the past two weeks.

In economic news, Pending Homes Sales declined at a greater rate than expected, according to the National Association of Realtors. Signed contracts dropped 1.3 percent given the index a reading of 109.5.

Treasury prices moved lower today, capping the upside in US stocks. The Treasury sold $35 billion in 5 year notes on Wednesday at a 1.624% interest rate with coverage of only 2.38, the lowest bid-to-cover ratio since July 2009 and well below the auction average of 2.74.

In sector news, oil stocks such as Marathon and Exxon moved higher on the heels of higher crude oil futures which rose to a two-year high at $112.24 per barrel and were close to pulling within range of 2011’s high-water mark of $113.93 per barrel.

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