[Chart courtesy of MarketWatch.com]
European fears have appeared to temporarily subside as markets pushed upwards once more, building off of last week’s big gains as the S&P 500 finished up 1.03%. This positivity was also echoed by European indices. Nevertheless, the Euro remained virtually unchanged against the dollar at $1.34/Euro.
Meanwhile, the Volatility Index had another quiet day, inching up 1.16% to finish at 27.84. Though there has been some market settling, we certainly aren’t in risk-off mode. If anything, the reduction in volatility merely makes for a slightly easier entry point to gain the selective equity ETF exposure that I’ve previously alluded to.
Market optimism aside, Standard and Poor’s is to announce widespread ratings downgrades for Eurozone countries, with France and Germany in serious doubt of keeping their AAA credit ratings among other countries. While this unofficial news didn’t seem to jeer investors today, actual actions taken may soon inject worry.
In the European political arena, Sarkozy and Merkel seem to be making some progress towards fiscal unity. The amended EU treaty contains a critical provision where private bondholders won’t have to bear losses in the event of a debt restructuring like Greece.
Other features include imposing sanctions for countries that reach deficits that are less than 3% of GDP and a mandate that all Eurozone members maintain balanced budgets. In theory, this is a step in the right direction but whether it can be realistically executed and deemed credible in the eyes of market participants will be the real challenge.
And talking about countries that need to get their deficits in check, Italy’s PM Mario Monti put his political favor on a limb by calling for an increase in the retirement age as well as a variety of spending cuts and tax increases including measures to thwart tax evasion, a major culprit near the heart of Italy’s deficit, which is at 120% of GDP.
As the week starts off with further gains in the market, it beckons the question of whether there are still some attractive equity ETF opportunities.
I believe there are a few gems well above their long-term trend lines that are worth taking advantage of in the short-term. For details, please review my latest ETF/MF Cutline reports.
But I must reiterate that I’m not straying from a majority bond ETF and cash allocation any time soon.