ETFs Rise After German Court OKs Bailout Fund

Michelle Remo, “Big 4″ observer
September 12, 2012 /

Exchange traded funds globally cheered the German high court’s approval of the eurozone’s new bailout fund Wednesday. Germany cleared a major hurdle in dealing with the EU debt crisis. Traders are now focused on the Federal Reserve meeting starting tomorrow.

Here’s a performance overview of the major ETFs:

iShares MSCI EAFE Index ( EFA ), tracking developed foreign markets, +0.52%, hit a four-month high.

iShares MSCI Emerging Markets Index ( EEM ), +0.22%, continued climbing above its 200-day line to confirm a new uptrend.

SPDR S&P 500 ( SPY ), +0.18%, trades near a five-year high.

PowerShares QQQ ( QQQ ), tracking the 100 largest nonfinancial stocks on the Nasdaq, erased early gains, falling 0.13% asApple ( AAPL ) turned lower on a lackluster response to the iPhone 5.

SPDR Dow Jones Industrial Average (DIA), +0.13%, rose to its highest level since January 2008.

September is historically the worst month of the year for stocks. But the S&P is defying history with a 1.93% rise month-to-date. It’s rallied 13.5% off its June low and a whopping 15% year-to-date.

“Stocks shouldn’t be doing so well,” wrote Ed Yardeni, president and chief investment strategist of Yardeni Research. “However, they’ve been on performance-enhancing drugs provided by the Fed and the ECB (European Central Bank).”

“But the month isn’t over. Then there is always October, which has had a knack for some wicked selloffs,” Yardeni added. “However, they often proved to be great buying opportunities.”

Trading volume slowed as investors eagerly await the Federal Reserve meeting Thursday and Friday when it’s expected to announce a third round of quantitative easing to support the economy.

“Investors seem to be assuming — rightly or wrongly — that policymakers in both Europe and the U.S. will be able to manage through the European debt crisis and the U.S. fiscal cliff and some of the bearish fears associated with these issues have shrunk,” Bob Doll, senior advisor at BlackRock, wrote in a weekly client note. “From a fundamental perspective, valuations have been and still are attractive relative to alternatives.”

Whether the rally can be sustained depends upon policymakers in China, Europe and the U.S., Doll added.

The market may have already priced in additional stimulus and there’s more upside potential than downside risks, some market strategists say.

“The reality is most hedge funds have missed this summer rally completely,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati. “Now they are forced to play catch-up. This increases the odds that they’ll be forced to aggressively buy any and all pullbacks.”


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