Ending speculations about a partial withdrawal of the economic
stimulus or QE3 tapering, the Fed surprised the world with its
decision to continue the $85-billion monthly bond-buying program
until at least the economy offers some more positive vibes. The
'no-taper' decision was particularly shocking given that the Fed
Chairman had earlier hinted about his intentions to start
tapering in September and gradually phase it out by 2014.
The equity market reacted positively and the news sent stocks
soaring with the benchmark U.S. S&P 500 index closing at a
record high at 1725.52 (up 1.22%). As stocks continue to move
north, let us cherry pick some must-have stocks with strong
fundamentals. However, before we zero-in on a handful of
priceless stocks, let us recap the various turn of events over
the past few months.
Factors that Pulled-Off the Tapering Plug
The Fed cited several macroeconomic headwinds, including high
unemployment rate, low inflation, rising mortgage rates and a
looming budget standoff as key factors that triggered its
Although unemployment rate dropped to its lowest level since Dec
2008 to 7.3%, the U.S. economy added just 169,000 jobs in August
as job growth was less than expected. The drop in unemployment
rate was primarily due to a 35-year-low labor participation rate
of 63.2%, as most Americans stopped looking for a job.
Labor Department data further revealed that job openings hit
their lowest level in six months in July to 3.69 million. It is
important for the broader economy to have a healthy employment
rate as much of the economic progress hinges on its labor market.
Consequently, the Fed intends to maintain minimal interest rates
until the unemployment rate falls at least to 6.5%.
On the other hand, mortgage rates have skyrocketed in the recent
past amid Fed taper mayhem, threatening to derail the healthy
momentum in the housing market. The housing sector has been one
of the catalysts for the economic growth.
Freddie Mac data reveal that the rate on a 30-year fixed
mortgage loan has increased to 4.51% as of Aug 29, from a Nov
2012 low of 3.31%. Higher mortgage rates coupled with increasing
home prices are increasingly making it difficult to refinance and
buy a new home, thereby somewhat affecting the housing recovery
in the U.S.
In addition, inflation, as measured by the
personal-consumption-expenditures price index, has also remained
healthy at 1.4% in July. The Fed had earlier observed that low
inflation is a risk to healthy economic performance and
consequently weak inflation data further gives it leeway to lift
the economy with near-zero interest rates and bond purchases.
Furthermore, the stage is again set for a showdown this autumn
when the Congress would meet to raise the debt ceiling and
discuss other budgetary issues and spending cuts. If an amicable
solution is not reached between the warring Republicans and
Democrats, economic growth could be hampered -- leading to
serious consequences for the financial markets, including a
possible downgrading of the sovereign credit rating. By deciding
to continue with its economic stimulus program, the Fed,
therefore, decided to avoid the risk of putting the government in
The Market Response
As the Fed deferred the dreaded tapering program, global equity
markets and gold prices went up, while the U.S. dollar and bond
yields dropped. While the Dow Jones industrial average was up
115.28 points (0.74%) to 15,645.01, the Nasdaq Composite Index
was up 25.59 points (0.68%) to 3,771.29 following the
The BNYMellonAsia ADR Index gained 2.6% -- the highest such
tally realized since June 2008, and the MSCI Latin American stock
index climbed 2.7% to 3,428.45. The benchmark BSE Sensex of India
was up 3.43% or 684 points on Sep 19. Gold prices rose over 4% on
the news - the largest single-day gain since Jun 2012.
GRUMA SA-ADR B (GMK): Free Stock Analysis
NIDEC CORP-ADR (NJ): Free Stock Analysis
SOUFUN HLDG-ADR (SFUN): Free Stock Analysis
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The U.S. dollar index fell to 80.376 - the lowest since Feb 20,
while the euro soared to a seven-month high of $1.3486. The
dollar fell to 97.98 against the yen on the news. The yield on
10-year U.S. Treasury, which hit a two-year high this month at
3.0%, fell to 2.69% on Wednesday.
3 Emerging Market Stocks to Benefit
Emerging economies have largely been the beneficiaries of Fed's
largesse over the years. Cash pumped in the emerging markets
through the stimulus program in the U.S. were primarily utilized
to plug funding deficits and used for infrastructure projects to
fuel further growth.
Amid such an encouraging performance by the equity market across
most indices in the recent times, there are certain emerging
market stocks with attractive valuation metrics backed by a solid
Zacks Rank #1 (Strong Buy). Let's take a closer look at these
companies that appear to be well positioned to benefit from the
): Headquartered in Kyoto, Japan, Nidec manufactures and sells
industrial electric equipments like hard disk drives spindle
motors and other small precision motors for optical disk drives,
laser printers, copiers, polygon scanners, electronic cooling
fans, refrigerators, mobile phones, digital video recorders,
automobiles and other applications. The stock is trading at a
forward P/E of 17.57x and has a long-term earnings expectation of
SouFun Holdings Ltd.
): The company trades at a forward P/E of 16.98x and has a
long-term earnings expectation of 39.81%. SouFun operates a real
estate Internet portal, and a home furnishing and improvement
website in the People's Republic of China.
Gruma S.A.B. de CV
): Headquartered in San Pedro Garza García, México, the company
produces and sales corn flour, wheat flour, tortillas and other
related products. Its product portfolio includes rice, oats,
packaged tortillas, grits, snacks, tortilla chips, corn chips and
potato chips. Gruma has a forward P/E of 30.99x.
The equity market perhaps is currently passing through a stage of
maturity and the euphoria is likely to continue in the short
term. As the U.S. stocks continue their unrelenting rally of
reaching new highs, this is perhaps the most opportune time to
own such high-potential stocks with strong fundamentals that
pledge a healthy ROI.