Equity ETFs have been knocked to the mat and investors are positioning for an uncertain summer as Greece eyes a June 17 general election that could ultimately result in the troubled country exiting the euro.
“Thus opens a new and dangerous chapter in the long-running saga of the European debt crisis,” says JP Morgan Funds chief market strategist David Kelly. “To put it simply, Greece and the rest of Europe are in a dangerous game of ‘chicken.’”
Stock ETFs have taken a hit with the S&P 500 on a six-day losing streak heading into Monday’s bounce.
“There is very little to stop the S&P 500 from falling to 1278 at the moment (the 200-day simple moving average) and could even drop further to 1257, which would wipe out all of this year’s gains,” said Randy Frederick, managing director of active trading and derivatives at Charles Schwab.
“The VIX is now at year-to-date highs, signaling traders to get more active about hedging,” Frederick said. “Reasons for additional concern at this time include everything from technical indicators like all the major averages now breaking through their 100 day moving averages to more fundamental and macroeconomic issues including no significant improvement in employment data and worsening problems in Greece and Europe in general.”
The iShares S&P 500 (NYSEArca: IVV) had a total return of 3.8% year to date as of May 18. [Stock ETFs Holding Slim Gains for Year]
As Greece and Europe ponder the nature of the end game “the risk of misunderstanding is great,” wrote JP Morgan’s Kelly in a weekly outlook.
“The danger that neither side blinks will likely keep markets unsettled at least until mid-summer,” Kelly added. “For investors, a worst-case scenario in Greece hasn’t been priced into markets yet and signs that neither side is going to blink could easily lead to further equity market losses. However, rising earnings, rising dividends, falling stock prices and falling interest rates have left relative valuations extremely stretched, and any sign of compromise could lead to a sharp rally in risk assets.”
iShares S&P 500
Global X FTSE Greece 20 ETF (NYSEArca: GREK)
