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Stocks Fall as EU Summit Risk Rises: Will Europe Derail a December Rally?


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It sure doesn't take much to spook this market. Before the start of trading today the S&P 500 was poised to claw its way back into positive territory for the year after the European Central Bank cut interest rates by 25 basis points to 1%. Bullish sentiment was running high on this and rumors that the central bank would make more aggressive bond purchases from the weaker Eurozone countries.

And then, recently installed ECB President Mario Draghi threw cold water on the ECB bond buying rumors, which turned a rate cut rally into a risk-off retreat.

"It's all about Europe right now," says Todd Schoenberger, managing director at LandColt Trading. "The debt concerns, everything that's happening just in those PIIGS - Portugal, Ireland, Italy Greece, and Spain; that's impacting the European countries and their governments, but it also impacts our U.S. banks here."

The impact was clearly felt in today's movement. Riskier assets like the Philadelphia Bank Index (^BKX), Small caps (^RUT), and the Emerging Markets (EEM) were hit the hardest.

"We just want to hear good news and they (EU leaders) just want to show confidence," Schoenberger says. "But when you dig into the details, and we will over this weekend, that's when we'll start saying 'oh boy, can they implement this?'"

Clarity is what Wall Street is clamoring for.

"One, we want to know 'do they have a plan?'" he states. "Two, how much money is gonna be thrown at it?"

Despite the clear and present EU summit risks,, Schoenberger still believes the U.S. market will grind higher through year-end. His expectation for continued light trading volume will give way to single-digit short-term gains, thus a solid finish to 2011.

History is also working in December's favor. It's statistically the best month of the year for the S&P 500 and the odds of year-end success are even higher when preceded by a weak November, as was the case this year.

Will Europe derail the December rally? Let us know your thoughts in the comment section below or visit us on Facebook.