Major ETFs Rally To Three-Month High


Major ETFs climbed to three-month highs on hopes of more assistance from the European Central Bank in dealing with the debt crisis.

"Markets bought into ECB rumors in abundance on information that there may be wheeling and dealing going on behind closed doors to address Spain and Italy's stubbornly high borrowing costs," Andrew Taylor, a market strategist at GFT, wrote in a commentary.

The SPDR S&P 500 ( SPY ) jumped 0.47%.SPDR Dow Jones Industrial Average ( DIA ) rose 0.51%.PowerShares QQQ ( QQQ ), a basket of the 100 largest nonfinancial stocks on the Nasdaq, surged 1.02%.

"The 50,000-foot view is that of a market in the midst of a large base-building pattern in the wake of the December-March mark-up period," Kevin Marder of Marder Investment Advisors wrote in a client note. "This basing phase occurs as the individual investor appears to have given up on equities. In light of a global growth slowdown, participants favor low-expectation issues, many of which pay dividends above the yield on Treasuries."

Randy Frederick, managing director of active trading and derivatives at Charles Schwab, believes the S&P 500 can rally to a new high by mid-August. The market appears bullish given the low volatility, relatively high European bond yields and strength of the S&P 500, he says.

"Despite plenty of large moves in the market in both directions and no real resolution to the problems in Europe, volatility continues to remain quite subdued," he wrote in a note the media. "While the July employment report has likely lowered the chances of QE3 (a third round of quantitative easing) for now, and the strong promises in Europe have yet to materialize into anything of substance, the market remains remarkably resilient, and optimism seems to be increasing."

Investment advisers say the market is driven by news more so than fundamentals and expect volatile trading the rest of the summer.

"Sudden, sharp reversals are normal in this environment, and these reversals severely complicate the picture for short-term traders working on the two-day to two-week time frames," Waverly Advisors said in client note this morning. "The only viable solution for most traders and investors is to focus on longer-term, bigger-picture setups."

Waverly added: "Our macro view has evolved into three key themes over the year to date:

"1) The U.S. economy remains poised to outperform, which should continue to be reflected in U.S. dollar-denominated asset valuation over the intermediate term on a relative basis (with the obvious proviso that this will be subject to short-term tactical forces we saw in the post-European Central Bank-announcement euro rally.

"2) That China's ability to protect and nurture growth domestically will have a much less profound impact on the global economy in the near-term than in prior stimulus periods.

"3) That the final day of reckoning has yet to pass for Europe, making any euro-denominated asset exposure fraught with risk unless actively managed. Put simply, China can't save the world, the European Union can't fix what is broken without feeling more pain, and the U.S. looks like the least dysfunctional of the primary wealthy economies (if only by a modest margin)."

Weakness in the dollar against the euro boosted gains in overseas markets. PowerShares DB U.S. Dollar Index Bullish ( UUP ) shed 0.27%.CurrencyShares Euro Trust ( FXE ) rose 0.33%.

IShares MSCI EAFE Index (EFA), tracking developed foreign markets, vaulted 0.96%.

IShares MSCI Emerging Markets Index (EEM) climbed 0.94%.

Follow Trang Ho on Twitter @TrangHoETFs .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: DIA , FXE , QQQ , SPY , UUP

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