Credit Crisis Continues to Plague ETFs

For the seventh straight day stocks sold off as investors continued to worry about firms surviving the global credit crisis.

On Wednesday it was announced that numerous central banks across the globe, including the Federal Reserve, the European Central Bank, the Bank of England and People's Bank of China, coordinated an across the board rate cut. Thursday the Wall Street Journal reported the U.S. Treasury was considering buying stakes in individual banks. However, those efforts still didn't relieve a lot of investor fear driving trading the last few days or loosen lending markets that have all but seized up.

Meanwhile, the SEC's ban on shorting selling certain companies, especially financial services firms, expired. That had a direct impact on insurance and banking stocks the entire session. Morgan Stanley (MS) saw its shares drop almost 28.5%. KeyCorp (KEY) slid 28.1%.

Traders also had some corporate and economic news to mull over. Reports of weak auto sales--not only in 2008 but 2009, too--and a down grade in the last hour of trading by S&P hurt the shares of General Motors (GM) Thursday. The stock is now trading at a 50-year low. The Department of Labor announced initial jobless claims fell to 478,000 from 498,000 last week. Wholesale inventories increased, albeit at a modest clip. Oil fell to $85 a barrel, a level it hadn't seen since earlier in the year, over renewed concerns demand would be curtailed by a global economic slow down.

Once again, trading seemed dictated by redemptions, margin calls or a lack of investor calm vs. anything to do with over- or underpriced stock prices. The Dow Jones Industrial Average was down around 100 points in mid day trading before a staggering sell-off in the last 90 minutes. It closed down 678 points to 8,579. The Dow hadn't closed below the 9,000 level since 2003.

Short-focused ETFs had a big day. As the market sold off near the close, these ETFs took off. The top 30 performing funds Thursday were short-focused funds. The ProShares UltraShort Financials (SKF) gained 21.8%.

The expiration of the SEC's short-selling ban, along with another round of worries over frozen credit markets, caused financial services ETFs to post losses Thursday. The SPDR KBW Regional Banking ETF (KRE) lost 14.1%. Its counterpart, iShares Dow Jones U.S. Regional Banks, fell 12.4%

Back At It
ProShares announced it would resume Thursday the normal process of creating new shares of its UltraShort Financials (SKF) and Short Financials (SEF) ETFs. The company had temporarily suspended this process during the SEC's ban on short selling financial firms. That ban expired Thursday.

Earnings & Conference Calls
Friday: General Electric, Host Hotels, Infosys

Economic Data
Friday:
8:30a.m. Aug. Trade Balance
8:30a.m. Sept. Import Prices

A look at how the industry's most popular ETFs did on Thursday.