Stocks Crushed on Fiscal Cliff, Europe as Dollar ETF Hits 2-Month High

ETF Trends

Exchange traded funds were in risk-off mode Wednesday following President Barack Obama’s election victory and on renewed concerns over Europe’s debt crisis.

The Dow was off more than 300 points as worries turned to the looming U.S. fiscal cliff that could send the economy into a tailspin.

“We are now squarely focused on what are you going to do about the fiscal cliff and how is Europe going to resolve this (debt crisis) problem, those two problems haven’t gone away,” Ron Florance, managing director of investment strategy for Wells Fargo Private Bank, told Reuters.

PowerShares DB US Dollar Index Bullish (UUP) climbed to a two-month high as investors moved to safe havens.

In commodities, SPDR Gold Shares (GLD) was fractionally negative while U.S. Oil Fund (USO) slipped nearly 4%.

European equity ETFs were also deep in the red with iShares MSCI Italy (EWI) pacing the declines with a nearly 3% sell-off. The iShares MSCI Germany (EWG) fell 2.3% after European Central Bank President Mario Draghi said the lingering debt crisis is weighing on the region’s largest economy.

CurrencyShares Euro Trust (FXE) was lower Wednesday as the attention turned to European sovereign debt after the U.S. presidential election. Since mid-October, the dollar has been rising as the euro weakens.

“Obama’s re-election means political and Federal Reserve business as usual in the U.S.—but also means plenty of uncertainty surrounding the fiscal cliff,” said John Hardy, currency strategist at Saxo Bank, in a MarketWatch report. “Ironically, the worse [the threat from] the fiscal cliff, the better the dollar will likely do because the U.S. dollar is so linked to global risk appetite and the threat of a U.S. recession would likely see the dollar appreciate” on safe-haven flows, he added.

Full disclosure: Tom Lydon’s clients own GLD.

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