Exchange traded funds that invest in stocks and the euro rallied Monday with investors hoping equities ETFs have put in a short-term low as European markets firm somewhat before a key meeting this week.
SPDR S&P 5oo ETF (NYSEArca: SPY) and CurrencyShares Euro Trust (NYSEArca: FXE) were both up more than 1% in early trading after last week’s volatile swings.
Investors are worried that the stock correction the past two weeks is similar to the fall of 2008, when a financial crisis and equities pullback presaged an economic contraction and further weakness in stocks.
David Kelly, chief market strategist at JP Morgan Funds, says the fear is overblown.
“First, while the stock market has been very volatile, there has been no significant disruption in the banking system. Moreover, unlike 2008, there has been no great concern about the adequacy of bank capital or a breakdown in inter-bank lending,” Kelly wrote in a weekly outlook Monday.
“Second, on the economy, the decline in confidence over the past two months is quite similar to the slide that occurred in 2008. However, three years later, the economy appears less vulnerable to a decline in confidence,” he added.
In Monday’s economic data, the Empire State index remained in negative territory in August as the report was weaker than expected.
“Outside of the economic numbers, eyes will likely be turned to Europe, as Nicolas Sarkozy and Angela Merkel meet to discuss the sovereign debt issue on Tuesday, with the danger that any statement following the meeting will be seen as either complacent or unnerving,” Kelly wrote.
“In the last few weeks, as investors have considered problems with European bonds, the downgrade of U.S. debt and the weakness in U.S. economic numbers, sober analysis has often been trumped by a ‘sell now and ask questions later’ mentality,” the strategist said. “Hopefully, this will be a week in which markets react more to economic numbers than to the movements of the markets themselves. If so, it would represent the clearest proof that today is not September of 2008.”
SPDR S&P 5oo ETF
