Courtesy of Daniel Sckolnik, ETF Periscope
“A man is usually more careful of his money than he is of his principles. “ — Ralph Waldo Emerson
Last week, the key factor that seemed to impact investors the most was the comments made on Tuesday by Vítor Constancio, the Vice-President of the European Central Bank. He managed to convey his contempt of those who questioned the structural integrity of the European Union’s monetary union by stating that it was both “absurd” and “unthinkable” that the euro would, in the long run, fail to hold up.
Surprisingly, these seemed to be the magic words that Wall Street wanted so badly to hear whispered into its collective ear, as the Dow Jones Industrial Average (DJIA) jumped up 3.6% for the week, the S&P 500 Index (SPX) gained 3.7%, and the tech-laden Nasdaq Composite Index (COMP) added 2.5%.
To many investors, the more critical numbers were those that indicated the gains on the year. As of Friday, the DJIA was up over 6% for the year, while the benchmark SPX stood at a year-to-date 0.6% gain. Even the COMP, a laggard for much of the year, saw some light at the end of the tunnel, though it remained off by 1.3% for the year.
Whether investors continue to ride the good feelings in an upward trend over the year’s remaining four sessions remains to be seen.
However, the fact is that trading volume is on the low side, which is par for the course for this time of year. Also, a lot of the move up can likely be attributed to the traditional end-of-the-year window dressing created by fund managers to decorate their portfolios. Taken together, it might leave doubters to wonder if the rise will continue for any real duration into the New Year.
It will also be worth recalling that the pattern of the equity market over the last four months has been the same: Good news from the European theater results in a rise in the market, while the other shoe can usually be found extremely close by. And, when that other shoe does indeed drop, the market follows it down.
This time might be different. But probably not.
Hedge your bets, take a breath, and enjoy the transition into 2012.
ETF Periscope
Full disclosure: The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”
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