In what has so far been a topsy-turvy week on Wall Street, the markets backtracked into the red after Tuesday’s gains. While the Dow was marginally affected, dropping 0.63%, the S&P 500 and NASDAQ respectively fell 1.26% and 2.01%. It’s quite a disparity among the three major indices indeed. Meanwhile, oil dipped 2.60% to 86.04/barrel.
With regards to the U.S. economic outlook, the recent Beige Book report from the Fed highlighted some improvement in consumer spending as well as manufacturing. However, lower business investment, as shown by lower loan activity, as well as persistent high unemployment, continue to be a crutch for the economy, a sentiment expressed by falling markets today.
Weak economic data and mixed corporate earnings show few signs of improvement in the U.S. Yet, the extent of Europe’s progress with the debt crisis still remains an unanswered question as well.
French and German officials are at odds over the ECB’s role in the overall scheme of recapitalizing banks and determining an appropriate haircut for Greek debt. Clearly, the situation in Greece is becoming a bit more unruly as the country passed an austerity measure to avoid default at the expense of severe public discord.
As I’ve previously said, even with an enlarged EFSF that cash-strapped countries can tap into, Europe will be stuck in a state of disequilibrium as long-term debt liabilities get pushed out into the future, which brings up the question as to whether all of Europe will eventually look like Greece.
The bottom line is that there is still no concrete plan not only on how to deal with Greece, but the rest of European Club Med with Belgium thrown in the mix, given their massive debt burdens.
As an indication of just how volatile the markets are, the VIX nearly posted a double digit jump, rising 9.13% to 34.44. With this tug-o-war mentality swaying markets every which way, along with the domestic major trend still being stuck in a trading range, there is little to no reasonable basis to consider equities at this point.
Let this week’s widely swinging markets serve as a notice about the wisdom, or lack therof, of heading into equity ETFs, with the exception of a couple promising sector ETFs that are crossing their long-term trend lines. By and large, I still believe that cash/ bond ETFs are still the way to go at this point.
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