Major ETFs hit their highest levels since 2008 in quiet trade
in August and then stalled, anxiously awaiting Fed Chairman Ben
Bernanke's speech Aug. 31 at the annual central bank meeting in
Jackson Hole, Wyo.
With one day left in the month, theSPDR S&P 500 (
) added 2.13%, rising for a third straight month.SPDR Dow Jones
Industrial Average (
) ticked up 0.28%.PowerShares QQQ (
), a basket of the largest 100 nonfinancial stocks on the Nasdaq,
The failure of the faster growing and more speculative firms
in theiShares Russell 2000 Index (
) to hit a new high on top of low trading volume questions the
sustainability of the market's uptrend, said Gabe Varga. He is
president of Indianapolis-based Axiomix, an investment research
firm catering to mutual fund and ETF investors.
"Some kind of good news is needed to break out decisively,"
Varga said. "Unfortunately, investors do know that September and
October have often brought severe corrections in market
While Bernanke's words moved markets in the past, some market
watchers doubt the Fed could enact more economic stimulus ahead
of the election.
"Such a move now could be criticized by both sides as either
baldly political support for the incumbent, or proof that current
economic plans are failing and that a change is needed in
November," Tom McClellan, founder of the McClellan Market Report,
wrote in a daily client note.
Foreign ETF Performance
IShares MSCI EAFE Index (
), tracking developed foreign markets, added 2.62% for the month,
led by a rebound in Spanish and Italian stocks. Outpacing all
global markets in August,iShares MSCI Spain Index (EWP) jumped
10.31% as it bounced back from an 11-year low. This appears to be
a countertrend rally in a long-term downtrend. It's still trading
below the 200-day average, which is bearish.
Catalonia asked Spain's central government for a bailout this
week, intensifying the country's need for an international
bailout, which it's trying to avoid. The region, home to
Barcelona, is the third to ask for aid. Spain and Italy hope the
European Central Bank will hash out a plan to buy their bonds at
the ECB's monthly meeting next week to lower their borrowing
The markets have rallied ever since ECB President Mario Draghi
said the bank would do "whatever it takes" to save the euro.
"That has been widely interpreted as meaning they have found
an end-around play that will allow the ECB to undertake an
American style (quantitative easing), said Bill DeShurko, founder
of 401 Advisor LLC in Centerville, Ohio. But "it's just not that
easy due to (European Union) treaty."
Chinese materials and infrastructure stocks weighed oniShares
MSCI Emerging Markets Index (EEM), which gave back 0.48%.Global X
China Materials ETF (CHIM) lost 5.56%.EGShares China
Infrastructure (CHXX) fell 4.36%.
Stockpiles of unsold materials and retail goods abound in the
world's second-largest economy amid slowing economic growth. GDP
slowed to a three-year low of 7.6% in Q2. Until this year,
China's GDP grew more than an average annual 9% the past 20
years. Rising labor costs pushed manufacturers to send production
to Thailand and the Philippines, where stocks boomed this
The Chinese government will likely stimulate the economy soon
to avoid a "hard landing," which would likely bolster stock
prices, said Douglas Stewart, a portfolio manager at Sherwood
Forest Capital Management.
Underperformance in emerging markets has driven valuations so
low that investors will eventually look past the headlines to
take advantage of low prices, says Bill Spitz, former vice
chancellor for investments at Vanderbilt University.