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.
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 .