Last week I wrote that the relative underperformance of financial exchange traded funds was suggesting the U.S. stock market could have a rough December, with investors getting a lump of coal rather than a Santa Claus Rally. [Financial ETFs Not Sending Good Signals]

My thinking was that the fall melt-up in stocks was over after yields on Italian bonds spiked over the critical 7% level, and given the speed of the move and ensuing contagion as a result. Spain’s yields jumped, and equity markets fell substantially up until last week’s global central bank intervention. I noted that the “fever must break” in Europe for equities to resume strength, and that it had to do so within days and not weeks. It appears Federal Reserve Chairman Ben Bernanke and other central banks have bought enough time for European leaders to hammer out a deal at this week’s summit. [ETFs Rally on Liquidity Measures]

Markets had their best week since March 2009, and admittedly I underestimated the possibility that intervention was around the corner. However, I was correct in identifying that the conditions did deteriorate significantly. What I failed to consider was the will of monetary authorities to prevent another 2008-like event from repeating. Make no mistake about it – last week was a game changer. Unlike previous moves up in equities since the crisis erupted, this one occurred with a true action taking place as opposed to just a rumor. The “December to Remember Breakdown” now appears to be off the table given the dramatic change in market internals and revival of inflation expectations signaled by various areas of the investable landscape.

For example, take a look below at the price ratio of the Utilities Select Sector SPDR ETF (XLU) relative to the S&P 500 (IVV). As a reminder, a rising price ratio means the numerator/XLU is outperforming (up more/down less) the denominator/IVV.