European uncertainty continues to hang over us, but that didn’t stop major market ETFs from trending up as the S&P 500 rose 0.83%. However, the Euro is still at $1.31/Euro, indicating that risk perception remains high.

In the U.S., the bleak unemployment picture seemed to hit a bright spot. Unemployment claims this past week hit their lowest level in 3 ½ years. While this is positive, we need to see a steep drop in the unemployment rate to have any faith that we’re on a path toward recovery.

And although Congress can’t agree on how to cut the deficit, the House has finally given in to allow a payroll tax cut extension. This might help small businesses especially, but will have a minimal positive dent on markets at best.

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Not a lot of movers and shakers in the market today as the S&P 500 finished up only 0.19%.

While most of the indexes hovered near zero, tech got pretty battered as the NASDAQ fell 0.99% based on Oracle’s weak earnings, having a domino effect on other tech stocks such as IBM.

Although I hesitate to say we’re in risk-off mode, the VIX reached its lowest level since late July, ending just below 22. On one hand, this can be interpreted as a positive sign to gain an entry point into selective equities. Nevertheless, I believe markets will start swinging more again once the holiday season is over and volume picks up again.

Trying to catalyze credit flow, the ECB gave over $645 billion in long-term loans to European banks. With liquidity drying up and banks hesitant to lend, these loans will hopefully provide the fuel to get the European economy up and running again. If anything, we’re seeing evidence of a financial system hampered by contagion and starved for funds.

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Markets suddenly were in a bullish mood today as indices worldwide moved to the upside. The S&P 500 jumped 2.98% while European indices such as the DAX gained 3.11%. However, the Euro didn’t move much against the dollar, ending at $1.31/Euro.

With equity ETFs gaining, bond ETFs didn’t fare as well. The 10-year Treasury had a large price decline, resulting in a yield of 1.92%. Yet, this doesn’t detract from the fact that there is still plenty of risk on the table. I believe that today was a momentary blip (we’ve seen those before) that is unlikely to persist.

The big announcement of the day was better than projected U.S housing data. According to the Commerce Department, there were 685,000 new homes last month, a 9.3% increase from October. This is certainly a positive indicator for the economy, but there is still a lot to overcome, as seen in this past Sunday’s 60 Minutes housing piece.

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The week started off on a bad note, as major market ETFs swung to the downside. The S&P 500 dropped 1.17% while other U.S. indices performed similarly. The dollar stayed at $1.30/Euro while commodities didn’t move much.

Keeping in line with the uncertainty in Europe, investors continued to flock toward Treasuries, with the 10-year Treasury falling to a yield of 1.81%, the lowest since early October. Although the VIX index may not show how risky the market is, the shift toward fixed income highlights the greater possibility of a long-term downside scenario with equities.

As I talked about in my weekend article about quantitative easing, the implementation of QE3 could push equity ETFs into bull territory given the gains seen during QE1 and QE2. Whether QE3 could offset Europe’s problems is up in the air though.

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