It's coming down to the wire, but it looks like there will be some sort of plan after the wildly extended debate over how Europe is going to handle its debt crisis. The natural questions are whether or not it's really over and what it means for U.S. investors.
"If Europe is out of the headlines, we think the global economies are doing okay," says David Katz of Matrix Asset Advisers. Katz believes the best thing about some sort of resolution will be giving investors a break from discussing it.
However, just getting off the front page is only half the battle. The solution needs to unite the 17 member nations of the Eurozone. The fix doesn't have to be perfect, it just can't allow for throw down fights between the European haves and have nots.
Katz is guardedly optimistic that Europe will get there, and points out that the U.S. only has two political parties and can't even come to a decision on something like the pointlessly damaging debt ceiling debate of last summer. Bringing unity among 17 nations who share little beyond a single currency is going to require some concession from everyone involved, particularly the healthier nations.
This compromise seems to be slowly happening. "The parties that have the most financial wherewithal, Germany and France, want to keep the euro together," says Katz. "It may be unpopular with the public, but the leaders know what they have to do."
Katz is relatively sanguine about the U.S. economy, with or without a resolution in Europe. He's comfortable that the U.S. is growing, albeit slowly. Once European businesses and consumers know the rules of the game Katz says they'll start spending again, which benefits the rest of the world's economies. "Businesses (in Europe) really stopped spending because of the uncertainty about what would happen," Katz says.
In the interest of disclosure, I'm less enthused about the EU's environment. The market gave traders a "graceful exit" this morning, opening more than 1% higher on what amounts to slightly more tangible rumors from across the pond. When markets open higher on relatively minor news it's an invitation to take some exposure off. I accepted the invite, as it would have seemed rude not to do so. I'm still long and guardedly bullish, just less exposed than I was yesterday.
As for the latest market turnaround fueled by a report of China swooping in to buy EFSF paper --bonds issued by the European Financial Stability Facility-- it's just another example of jittery investors grasping for something, anything.
In the meantime, two levels to watch: S&P500 1,220 --where we broke out of the range-- and 1,250-ish --where we started the year.
As I always say, you can try anything you want as long as you have an exit plan. I'm still invested in increments and using tight stops. NOT ADVICE, just sharing. Let us know your thoughts in the comment section below.
- David Katz