The usual suspects in the never-ending European debt crisis
broke a three-day winning streak in exchange traded funds
Friday.
Financials led a broad European sell-off as the euro fell to a
fresh two-year low.CurrencyShares Euro Trust (
FXE
), tracking the euro against the greenback, tumbled 0.89% as
traders fled risky assets for safety in the dollar and yen.
IShares MSCI Spain Index (
EWP
), -7.02%, plunged the deepest among all non-leveraged ETFs.
Eurozone finance ministers approved Spain's bank-bailout package
and demanded the country restructure its financial sector and
enact tough austerity measures to get the money. Rumors emerged
that Valencia -- Spain's third-largest city -- would seek help
from the government.
Spanish 10-year bond yields soared to 7.22% intraday on
worries the country will be forced to seek a full-fledged
sovereign bailout owing to its debt burden. The country announced
last weekend that it would cut 56.4 billion euros, $69 billion,
from its deficit by 2015 by raising taxes and cutting spending,
which sparked public protests.
"The market has priced in the possibility of a full sovereign
bailout for Spain, especially since gross domestic product growth
for 2013 has been revised down to -0.5% from +0.2%," Kathy Lien,
a foreign currency analyst, wrote in Forexpros.com.
IShares MSCI Italy Index (
EWI
) sank 5.30%, nearly touching a three-year low. ETFs tracking
France, Germany and Austria fell 3%.IShares MSCI EAFE Index (
EFA
), tracking developed foreign markets, dropped 2.34%.
I
Shares MSCI Emerging Markets Index (
EEM
) lost 1.49%.
For the week ending June 18, mutual funds investing in Europe
posted outflows for the seventh time in the past nine weeks,
according to EPFR Global. Investors overwhelmingly opted for U.S.
bond funds and U.S. stock funds, pouring $3.1 billion and $6
billion, respectively, into those groups. Investors pulled money
out of emerging market funds for the 20th week in a row.
Market Overview
In afternoon trade, the
SPDR S&P 500
(SPY) skidded 0.84%.
SPDR Dow Jones Industrial Average (DIA) slid 0.91%.
PowerShares QQQ (QQQ), a basket of the largest-100
non-financial stocks on the Nasdaq, dropped 0.95%.
"The stock market may be emerging from the typical choppy
bottoming formation and into a very fluid move higher," Mark D.
Arbeter, chief technical strategist at S&P Capital IQ wrote
in his weekly report. "This potential 'sweet spot' usually sees
many weeks of consistently higher prices, where pullbacks are
bought, and investors with cash are left sitting on the sidelines
waiting for decent-sized pullbacks that never materialize."
From a contrarian point of view, overwhelming investor
bearishness suggests the market could head higher, Arbeter
added.
"Wall Street strategists are recommending a very low equity
allocation, while also recommending a very high and defensive
bond allocation," Arbeter wrote. "Market seers many times get
bearish on stocks when stocks have already gotten pounded, not
when the market is still in a bullish trend."
He believes the market will reclaim its 52-week high from
April and that the SPY could reach $150, up 9.8% from Friday's
level, by year's end.
Follow Trang Ho on Twitter
@TrangHoETFs
.