ETFs Nervous About Europe

Major Indexes were afraid of Europe yesterday as the S&P 500 dropped .25%, the Dow Jones Industrial Average dropped .05%, the NASDAQ Composite dropped .16% and the Russell 2000 Index dropped .81%. 

Major index ETFs responded in tune as the SPDR S&P 500 ETF (NYSEARCA:SPY) dropped .27%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) dropped .13%, and the iShares Russell 2000 Index ETF (NYSEARCA:IWM) dropped .79%.  The only index ETF to rise was the PowerShares QQQ Series 1 ETF (NASDAQ:QQQ) which rose .08%.

Major indexes and ETFs were likely focused on Europe yesterday, as the European Union began their first Summit of the year.  25 out of 27 EU nations passed a resolution to replace and expand the current rescue fund, while Greece rejected a resolution to have a European Commissioner oversee Greek finances in return for more bail-out money. 

Greece continues to be the continent’s problem child, as the nation’s debt restructuring talks have also stalled.  Meanwhile, Europe’s up-and-coming problem child, Portugal, recorded a record 17% bond yields rate while analysts believe that Portugal has a 70% chance of default within the next five years.  All in all, markets and ETFs yesterday had a right to be scared, as Europe has yet to put out this smoldering fire.

Gold and silver did not take the European news well either, as gold and silver ETFs declined slightly yesterday.  Keep in mind that Gold and Silver are usually viewed as “safe haven” currencies, so any continued problems in Europe will likely drive gold and silver prices up soon.  US Dollar ETFs rose yesterday however, as the US Dollar remains the world’s reserve currency and seemingly provides more safety than Euro dollars at the current moment.  US Treasury bond ETFs rose yesterday as well; investors are currently putting all faith behind the US Federal Government until Europe calms down (if it calms down).

Markets probably would have fared better yesterday if the day’s economic reports indicated a stronger US economy.  Furthermore, nobody should be too surprised that the VIX jumped 4.7%, as the markets are full of fear that Europe will collapse and send us all to oblivion.

Tech Sector and tech ETFs, however, have much potential (again) this week as Amazon (NASDAQ:AMZN) will release its earnings report today while Facebook is expected to file an initial public offering this Wednesday.  Any guesses for Facebook’s value?  Think $75-100 billion... wow.

Bottom Line: Markets and ETFs reacted poorly yesterday to the continued European drama of more summits, debt restructuring meetings, potential defaults, and whatever other issues the Continent can’t seem to handle.  Mixed economic reports at home probably did not help US markets and ETFs, however the US economy is still inching along in the positive direction.  I have said this before and I will say it now and again in the future: we live in historic times, so watch out.

Disclaimer: Wall Street Sector Selector trades a wide variety of ETFs and positions can change at any time.