Europe's most-battered markets extended their gains Friday on
speculation that European, U.S. and Japanese central banks will
do more to support the markets.
A European newspaper reported that European Central Bank
leaders are considering lowering interest rates and buying more
bonds. But the ECB wouldn't confirm or deny the report. Spanish
and Italian stocks started rallying Thursday after European
Central Bank President Mario Draghi suggested the bank might
print money to buy those country's bonds.
IShares MSCI Spain Index (
EWP
) shot up 5.84% Friday. Rebounding from a nine-year low, it
climbed 7.62% for the week.
IShares MSCI Italy Index (
EWI
) jumped 4.80%. It added 5.43% for the week after bouncing off an
all-time low. Both ETFs broke above their 50-day moving averages
Friday. But they still trade deep below their 200-day averages.
Both of their 50- and 200-day lines still point south, which is
very bearish.
Lingering problems in Europe makes it too early to go bottom
fishing, says Bill Witherell, chief global economist at
Cumberland Advisors, which manages more than $2 billion in
assets.
"Markets are still waiting for more effective actions by the
European governments," Witherell wrote in a client note this
week. "We doubt they will be satisfied by the results of the
upcoming euro zone heads-of-state meeting. We too are waiting for
more convincing evidence that Europe is resolving its problems,
before we add positions in Spain."
IShares MSCI EAFE Index (
EFA
), tracking developed foreign markets, surged 2.05%.
IShares MSCI Emerging Markets Index (
EEM
) climbed 2.46%.
The dollar continued to lose ground against the euro.
PowerShares DB U.S.Dollar Index Bullish (
UUP
) shed 0.11%.CurrencyShares Euro Trust (FXE) rose 0.24%.
Market Overview
In afternoon trade, the SPDR S&P 500 (SPY) climbed
1.72%.SPDR Dow Jones Industrial Average (DIA) rose 1.45%.
Amazon.com (AMZN) drovePowerShares QQQ (QQQ), a basket of the
100 largest nonfinancial stocks on the Nasdaq, up 2.07%.
"Despite flagging top-line (revenue) growth, we see earnings
growth at many companies and the markets are pricing these
companies as if their earnings will never grow again," Monty
Guild, chief investment officer at Los Angeles-based Guild
Investment Management, wrote in a commentary released
Thursday.
Stocks are undervalued considering the 2.5% dividend yield of
DIA exceeds the 2.13% interest income of 20-year government
bonds.
"This has only happened once previously in the last five
decades," Guild noted. "Dividends will rise further as companies
have become aware that the best way to gain attention and
shareholders is to increase their dividend payouts. Companies
have large amounts of excess cash and could easily expand their
dividends in order to attract buyers."
Among the bears, Jeff Sica, founder of Sica Wealth Management
in Morristown, N.J., is shorting U.S. stocks with the hopes of
profiting from falling prices.
"When another round of QE (quantitative easing) fails to
produce any economic improvement, the disappointment will be
monumental," Sica wrote in a commentary released Friday. "We are
positioned for whatever declines occur, after whatever artificial
appreciation is produced, from another round of easing."
He believes the Fed will engage in QE, which amounts to
printing money, before the election and will lead to higher stock
and commodity prices.
"This temporary appreciation will be short-lived as our
economy and economies around the world experience an
unprecedented slowdown. We anticipate a decline of 15% to 20%
prior to the election," Sica added.
"The cause will be: 1. The continued collapse of the European
Union. 2. The (U.S.) fiscal cliff, with specific focus on the
potential dramatic increase of the capital gains tax. 3. An
acceleration of the economic downturn in the U.S."
Sica is shorting the euro while holding long positions in
commodities, particularly grain and gold. He believes grains will
continue rallying because of the U.S. drought and says gold will
rally from investor distrust in governments and Fed easing.
Major upside moves tend to occur when the masses have given up
on stocks and when the news is most dismal, says Mark D. Arbeter,
chief technical strategist at S&P Capital IQ. If the S&P
500 manages to break above its 52-week high at 1422 ($142 a share
for SPY) from April 2, it could go on a tear, he believes.
"The last great breakout for the S&P 500 occurred back in
late 1982/early 1983 and led to an almost two-decades-long bull
market," Arbeter wrote in his weekly technical report. "We
remember the markets back then, barely, and the news headlines as
well as market sentiment were absolutely terrible, kind of like
today in some respects."
Follow Trang Ho on Twitter
@TrangHoETFs
.