All Europe, All the Time – The day began with a rally that was spurred by renewed talks of a large scale resolution for the European mess. That momentum came from Germany and France and by the way of new austerity measures passed by Italy. (See earlier blog about Italian and Spanish yields dropping.)
In the final hour of trading a rumor hit the wires concerning Standard & Poor’s putting 15 EU nations on credit watch negative. The 2 countries not included were Greece (already at CC) and Cyprus, which is already on negative credit watch. The official report was confirmed after the closing bell and the S&P futures are down 0.3% on the news.
I have little if any faith in S&P or any other ratings agency. They have been late to the game for years and it appears they are once again lagging the story. Therefore, I am not changing my outlook based on anything they have to say – it is old news.
There are meeting in Europe planned for Thursday and Friday and that will be the pivot point for how stocks trade for the remainder of the year. Obviously investors believe some type of backstop will be put in place for the region based on the buying of stocks the last week. If this fails to take shape, look for a heavy sell-off in stocks around the world. I will keep you up-to-date as we approach the meetings later this week.
Sector ETFs - Even after the late-day selling, the financial sector held onto gains of 2% with the SPDR Financial ETF ($XLF) closing at the best level in over 2 weeks. The SPDR Retail ETF ($XRT) continued its rally, gaining 1.5% and quickly approaching a new all-time high. The laggard was the SPDR Health Care ETF ($XLV) with a gain of 0.2%. The defensive sector does not attract big money when the "risk-on" trade is working.
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