Major U.S. and European stock
-- especially the most indebted ones -- rallied to new highs
Tuesdays ahead of a slew of highly anticipated, market-moving
events this week.
These include the key German court ruling on the legality of
the European bailout fund and the Dutch election Wednesday. Then
there's the possibility of more stimulus from the Federal Reserve
at week's end.
Global X FTSE Greece 20
), up 4%, hit a five-month high after a seven-day winning
IShares MSCI Spain Index (
), up 2%, reached its highest level since early April. Its IBD
Accumulation/Distribution Rating has improved to a strong B from
a low D+ in the past two months. That shows institutional
investors are buying more shares than selling.
IShares MSCI Italy Index (
), up 2%, also touched a five-month high and has a strong B
The world's most indebted countries are rallying from a relief
that the European debt crisis hasn't played out like the 2008
Lehman Bros. debacle, thanks to coordinated central bank
intervention from the U.S. Europe and China, says Michael Gayed,
chief investment strategist at Pension Partners in New York with
$150 million in assets under management.
"Markets acted with 100% certainty of a 2008 repeat," he said.
"The risk (now) is to not take the risk. The risk is to bet
against reflation when intermarket trends are all screaming that
inflation expectations are back, which is bad for bonds, and
great for stocks."
IShares MSCI EAFE Index (
), tracking developed foreign markets, climbed 1%.
IShares MSCI Emerging Markets Index (
), also rose 1%.
Strength in the euro against the greenback helped boost
returns for investments denominated in dollars.CurrencyShares
Euro Trust (FXE), tracking the 17-nation currency against the
dollar, climbed 0.8% to a four-month apex.
PowerShares DB U.S.
Dollar Index Bullish (UUP), measuring the greenback against a
basket of foreign currencies, plunged 0.7% to a new four-month
low on expectations that the Federal Reserve will announce more
quantitative easing when it meets Thursday and Friday.
"The market is expecting $600 billion in new printed money on
Thursday and anything less will be met with severe
disappointment," said Jeff Sica, founder of SICA Wealth
Management in Morristown, N.J. "The head games the central bank
has been playing with the psychology of investors will backfire
once investors realize the truth; which is the central bank has
no ability to save the economy by printing more money."
While the Fed can't help the economic problems brought on by
the European recession and the looming fiscal cliff, market
strategists believe more quantitative easing is likely because of
the high unemployment rate reported last week.
"There may be diminished marginal returns from doing more
easing," Joseph Kalish, chief global macro strategist at Ned
Davis Research, wrote in a report. But "the Fed may feel
obligated to act in order to fulfill its mandate."
U.S. job openings slipped to 3.66 million in July vs. 3.72
million in June, the Labor Department reported Tuesday. But job
openings climbed 9% from the year-ago period.
U.S. Markets Mixed
On the home front,
SPDR S&P 500
(SPY) rose 0.3% to just a hair below its 2008 high.
PowerShares QQQ (QQQ), tracking the 100 largest nonfinancial
stocks on the Nasdaq, slipped 0.07%.
SPDR Dow Jones Industrial Average (DIA), up 0.5%, touched its
highest level since December 2007.
The U.S. trade deficit grew by 0.2% in July to a seasonally
adjusted level of $42 billion, the Commerce Department reported.
The trade gap with China rose more than 7% to its highest dollar
amount ever. Overall, the gap was not as big as expected.
"The report suggests that exports are starting to weaken,
although the statistical impact on gross domestic product will
probably be neutralized by relatively weak imports as well," Jim
O'Sullivan, chief U.S. economist at High Frequency Economics,
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