Europe Troubles Undoing Fed's Easing Efforts: Pros

A renewed flareup of Europe's sovereign debt crisis is roiling US markets and counteracting the Federal Reserve's $600 billion stimulus program, some market strategists say.

A trader at the New York Stock Exchange.
Photo: Oliver Quillia for
A trader at the New York Stock Exchange.

Issues in Ireland, Greece and elsewhere in the Eurozone have returned the spotlight to the sovereign debt issue, which abated after an initial default scare in April.

US stocks have sold off over the past week or so and were down sharply Tuesday, due in large part to uncertainty in Europe as well as US monetary and fiscal policy, two market pros told CNBC.

That has been bad news for the Fed, which has been trying to direct investors into risk assets like stocks with its liquidity efforts, often referred to as quantitative easing. The Fed is planning to buy $600 billion worth of Treasurys over the next eight months.

"You can't force people to go where they don't want to go," said Dan Fitzpatrick, president of Stock Market Mentor. "There's so much investors uncertainty. They're trying to force investors into various assets. What they're really doing is forcing investors back into a box, which is causing the market to stutter and hiccup right now."

Cliff Draughn, president and chief investment officer at Excelsia Investment Advisors, said the second round of quantitative easing is unlikely to have much effect.

"This action by the Fed is nothing more in my opinion than trying to create an asset bubble in the financial markets," he said. "At the end of the day as long as you have a government who continues to monetize debt and print money, the currency of that country, be it us our Europe or anywhere else, certainly will not be strong. It will be weaker."

The dollar's recent rallyis a "technical bounce," Draughn said, caused by a flight to safety amid the Europe threat.

The stock market selloff may not last, but also is a sign of fears regarding sovereign debt, Fitzpatrick added.

"We have a strong uptrend in the market. The market ebbs and flows. This is a flow," he said. "Europe is a great reason to take money out of the market right now. There's so much uncertainty. If Europe continues to be weak, with all this austerity who's going to buy our stuff?"