Courtesy of Daniel Sckolnik, ETF Periscope
Wall Street Gets Manip-EU-lated
“Man is the most intelligent of the animals – and the most silly.” -Diogenes
Wall Street has become addicted to the daily drama that seems to emanate out of the euro-zone on a daily basis. So how much longer will this act continue to play out on the Street
Just like avid theatergoers, investors stand up and cheer when the principal actors, or in this case, the EU leaders, give a strong performance. They applaud when Merkel, Sarkozy and company articulate, in rousing monologues or impassioned soliloquies, solutions to its mess of a sovereign debt crisis. Positive reviews, when given, are immediately seen in the form of surging markets, as opposed to soaring ticket sales.
A perfect example of the EU successfully playing to its audience was October 26, when euro-zone leaders emerged from the Brussels Summit to indicate an agreement was in place designed to bail out any of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) that otherwise might topple on their sword of default. The solution, they proclaimed, or at least a key aspect of it, was an agreement to utilize leverage to maximize the Financial Stability Facility’s (EFSF) 440 billion euro fund. The fund, intended to contain the crisis, was generally acknowledged to be of insufficient size unless such leverage was made available.
The market roared its approval, surging to its highest levels in three months, tearing through technical barriers and generally invoking a Bullish response from investors who have been awash in uncertainty and vertigo-inducing volatility.
But, as some Greek dramatist of an earlier era surely must have said: That was then, this is now. “Now” being defined as last week when both the Dow Jones Industrial Average (DJIA) and the S&P 500 Index (SPX) suffered the snap of a common four-week long winning streak.
TheDow ended the week off 2.0%. The SPX dug deeper, loosing 2.5% over the last five sessions. The Nasdaq Composite Index (COMP), meanwhile, faired only slightly better, dropping 1.9%.
In what has become a wild 100-day ride vacillating between deep drops and power surges, these numbers are not particularly shocking. Perhaps what is more of a surprise is the fact that it seems that Wall Street continues to react so strongly at each shrug and wink out of the EU.
This time, all it took was…
