Major ETFs rallied to four-year highs in morning trade and
then sold off, ending the session in the red Tuesday.
In afternoon trade, the
SPDR S&P 500
) was down 0.37%.
SPDR Dow Jones Industrial Average (
) dropped 0.51%.
PowerShares QQQ (
), a basket of the 100 largest nonfinancial stocks on the Nasdaq,
Michael Arold, a manager at Covestor, a New York-based asset
management firm, remains bullish for now.
"Markets are an anticipatory mechanism, which often predict
what happens half a year or so down the road," he said. "Economic
numbers in the last months have been encouraging. Bond markets,
which are supposed to be less emotional, are singing the same
song. U.S. Treasury yields have been on the rise in the last
He has 100% of assets in long positions in his Covestor Model
Portfolio. With only four months left in the year, mutual funds
have to make up for performance by buying more stocks, Arold
added. Too many are sitting on the sidelines waiting for a
pullback to buy.
Citing research from Bespoke Investment Group, assets invested
in stocks by market strategists are at a five-year low, notes
Brian Gilmartin, a Certified Financial Analyst at Trinity Asset
Management in Chicago.
According to one firm, "$1 trillion has gone into investment
grade bond mutual funds this year, while $0.5 trillion has left
equity mutual funds," he said. "That isn't smart money."
Foreign Markets And Dollar Weakness
In overseas markets,
MSCI EAFE Index (
), tracking developed foreign markets, climbed 0.42% to a
IShares MSCI Emerging Markets Index (
) shed 0.20%.
Part of the gains for foreign assets denominated in U.S.
dollars was a result of the greenback's weakness against the
euro. The euro rallied on hopes the European Central Bank will do
something to lower borrowing costs for Spain and Italy. But the
ECB said Monday that reports about it capping bond yields was
PowerShares DB U.S.
Dollar Index Bullish (UUP) gapped down 0.66% to a six-week
low.CurrencyShares Euro Trust (FXE) soared 0.94% to a six-week
Market strategists said the euro is experiencing a
short-covering rally in which traders who bet that 17-nation
currency would go down, have to buy euros to close their
"Since the currency (euro) is highly shorted, a short covering
move would be expected, but I doubt such a move is sustainable
since economic fundamentals in Europe will stay negative for a
while," said Arold of Covestor. "In addition, the U.S. economy
has been gaining strength in recent weeks and investors might get
disappointed when the Fed will not launch QE3 (quantitative
In addition, rising Treasury yields support the dollar, whose
long-term uptrend remains intact despite Tuesday's sharp drop, he
On the other hand, any positive developments regarding the
eurozone debt crisis would positively affect the euro while
weakening the dollar, said Martin Arnold, a London-based research
analyst at ETF Securities, which has $26 billion in assets under
"The eurozone's dynamics are beginning to shift toward a more
collaborative approach, as evidenced by Germany's nascent support
for a potential fresh bond buying program from the European
Central Bank," said Arnold. "A key test of the support for a more
coordinated approach in Europe is the German parliament's vote on
legality of ESM (European Stability Mechanism) in
The ESM is a proposed international organization that would
provide money to troubled eurozone countries to replace temporary
funding programs. So far, 14 of the 17 eurozone members have
agreed to it. Italy and Germany have yet to approve the treaty to
establish the ESM.
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