ETF Investors Hear Dovish Bernanke Talk

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The global equities markets seem to like the idea of easy-money policies. Several major benchmarks this week, from the S&P 500 to Japan's Nikkei to emerging markets indexes, rallied-some to fresh records-on the heels of Federal Reserve Chairman Ben Bernanke's reassurance that even as the U.S. economy grows, interest rates will be kept low for as long as necessary.

The comments, which some viewed as a reversal from his earlier language suggesting the end of the easy-money era might begin to take shape as early as this year, were welcomed by a market fearful of prospects for higher interest rates and possible inflation. That's the same market that not too long ago was selling off in response to Bernanke comments about "tapering" the Fed's bond-buying program.

The reality is that nothing appears to have really changed, as some industry sources have suggested, but the markets can choose to interpret the same news in different ways.

The U.S. economy continues to grow at a slow pace, unemployment rates remain steady at 7.6 percent, and the latest consumer confidence report shows consumer sentiment is largely unchanged, if not a tad lower, in the past month. But reassurance from the Fed seems to suffice for now, and an improving U.S. housing market also helps explain a growing sense that the U.S. recovery is in full swing.

The latest housing data released late June and compiled through April showed that an average home in the U.S. is now worth about 12 percent more than it was just a year ago, according to S&P Case-Shiller Home Price Indices.

"Housing has a disproportionate impact on consumer sentiment; it can boost investor confidence of what's coming next," HardAssetsInvestor analyst Sumit Roy said.

For equity ETF investors, the past five days have meant gains across the board.

The S&P 500 posted a new record-high closing Thursday of 1,675.02-some 6 points higher than its previous May 21 record closing level. The benchmark has yet to retest its intraday high of 1,687.18 reached on May 22, but it continued to inch higher Friday morning. It has posted gains of 2.65 percent in the past week.

The biggest ETF that tracks it, the $133 billion SPDR S&P 500 (NYSEArca:SPY), is also up 2.7 percent in a week, at new record high levels. That puts shares of the fund 17.5 percent higher so far this year. The $44.7 billion iShares Core S&P 500 ETF (NYSEArca:IVV) rallied 2.6 percent in the past five days alone.

The Dow Jones industrial average, too, climbed to a new record closing Thursday-15,460.92-and continued to tag on modest gains Friday, rising nearly 2.3 percent in five days. The index's May 22 intraday high of 15,542.40 remains intact. The $735 million iShares Dow Jones U.S. ETF (NYSEArca:IYY) has rallied 3 percent in the past week.

On the global front, the Nikkei 225 came within grasp of late May highs, closing Thursday at 14,472.58, and breaking through 14,500 on Friday, tacking on gains of some 1.4 percent in the past five days. Year-to-date, the broad Japanese equities benchmark is up nearly 40 percent-an impressive rally that's based primarily on Japan's own set of quantitative-easing measures aimed at boosting economic growth there.

The $11.5 billion iShares MSCI Japan ETF (NYSEArca:EWJ) has climbed 1.95 percent in the past week, reaching its highest share price since May 22. Meanwhile, the $10.9 billion WisdomTree Japan Hedged Equity ETF (NYSEArca:DXJ)-a fund that takes the dollar-yen cross out of returns on the portfolio of Japanese equities-has only risen 0.5 percent in the past five days. But the fund remains more than 30 percent higher year-to-date.

Finally, emerging markets are also having a good week after being in such little favor in recent weeks following political turmoil in countries like Brazil and Turkey, and economic struggles across the region.

The MSCI Emerging Market Index, the benchmark underpinning the iShares MSCI Emerging Markets ETF (NYSEArca:EEM) is up 4 percent in a week, putting year-to-date gains at 8.8 percent.

To single out a few of the emerging markets ETFs targeting countries making the most headlines, the $5.7 billion iShares MSCI Brazil ETF (NYSEArca:EWZ) has managed to tack on gains of 2.1 percent in the past week, although the fund was already trading lower Friday. Year-to-date, shares of EWZ have now lost almost a quarter of their value as Brazil battles slowing growth, rising political instability and dwindling investor confidence.

Similarly, the iShares MSCI Turkey ETF (NYSEArca:TUR) has added 0.7 percent in the past week. But the recent gains have done little to retrace what now amounts to 15.7 percent in year-to-date losses.

The $5.4 billion iShares FTSE/Xinhua China 25 ETF (NYSEArca:FXI)-comprising mega-cap Chinese equities-is also up on the week, with gains of 3.5 percent. FXI was already tallying losses of nearly 3 percent Friday, and since the beginning of the year, FXI has now slid nearly 18 percent.

Even in the bond space, there were gains to note. The $3 billion iShares 20+ Year Treasury Bond ETF (NYSEArca:TLT) rallied 1.6 percent in five days from a July 5 low that was its lowest share price since August 2011. Year-to-date, the fund remains nearly 11 percent in the red.

On the shorter end of the curve, for the iShares 1-3 Year Treasury Bond ETF (NYSEArca:SHY), gains in the past week were more muted-to the tune of a 0.1 percent rally-and not enough to bring the fund, which is currently 0.12 percent in the red year-to-date, back into black territory.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: EWZ , FXI , IYY , SHY , TLT

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