[Chart courtesy of MarketWatch.com]
Major Market ETFs roared back for a second straight day despite persistent uncertainty in Europe. The S&P 500 bumped up 1.88% while commodities also did well, with oil and gold rising 1.20% and 2.16%, respectively.
While some optimism has crept back into the market, I find it puzzling how the European negativity appears to be so severely discounted. The current trends justify some equity ETF exposure on the domestic side, but I am maintaining a cautious approach as to how I achieve the exposure in the wake of these volatile swings.
With Trichet out, Draghi has set the tone for the start of his ECB presidency. He has spearheaded recovery efforts by loosening monetary policy, cutting rates by 0.25 percent. This should hopefully ease credit flow and uplift markets, especially amidst widespread austerity that is choking economies throughout Europe.
Meanwhile, with Spanish and Italian rates having reached very high levels, some sort of intervention is necessary. Although the ECB might be taking some steps in the right direction, this won’t necessarily improve Greece’s fortune.
Sure, it looks like Greece has stepped back from the referendum, which has calmed markets, but it doesn’t mean that the likelihood of default is off the table yet. What is most worrisome is this back and forth indecision about whether or not Greece wants a bailout. If Greece isn’t confident enough to decide on its own future, I’m afraid we can’t put much faith in its ability to achieve a successful outcome. In essence, another dip in the vein of what we saw at the beginning of the week isn’t out of the question.
Aside from Europe, the trajectory of the U.S. Economy looks dour. Bernanke noted some marginal third quarter improvement in growth, but the long term picture offers little hope for now. Unemployment hasn’t let up as a drag on the economy and a QE-3 injection will probably be needed to keep the economy afloat.
In the meantime, I’ll be closely following the G20 developments and how they might impact Europe as well as the issue concerning currency wars. However, the seemingly picturesque weather in Cannes has now turned gray ahead of the G20 meeting. Perhaps it’s a sign that major difficulties continue to lie ahead.