The day has finally arrived, the Fed has begun its taper.
The Fed announced it will continue to make monthly asset
purchases, but at a $75 billion per month pace versus the
previous $85 billion per month. In the end, the $10 billion taper
per month is a drop in the bucket and that is why the market is
reacting as it is.
SPDR S&P 500 ETF (NYSE:
Immediately after the announcement the stock market rallied
and SPY moved from a slight loss for the day to a gain of over 1
percent. The rally has the SPY at the best level in a week and is
now sitting just 0.5 percent below an all-time high.
It is clear the market had already priced in the $10 billion
taper and is happy the Fed is beginning to show a plan versus the
uncertainty that has been looming over the asset purchase
PowerShares U.S. Dollar Index Bullish ETF (NYSE:
The tapering should be a bullish move for the greenback as
other countries around the world continue to push stimulus and
lower the value of their respective currencies. That was not the
reaction in UUP after the Fed announced the taper; the ETF, which
was quiet, the majority of the day began to fall after the news
hit the wire.
Which Companies Hoarded the Most Cash in
The reaction could be chalked up to similar action in SPY, the
market sees the $10 billion taper and small potatoes and is not
ready for the U.S. Dollar to begin a rally as of yet.
SPDR Gold ETF (NYSE:
The reaction from gold has been choppy as the metal originally
rallied to the high of the day before drifting back near the
break-even point within the hour.
A weak U.S. Dollar and a small taper should be bullish for the
precious metal and GLD and this is why the original move was
higher. However, the longer-term trend for gold is bearish and it
appears the rally was merely a chance to sell the commodity.
iShares 20+ Year Treasury Bond ETF (NYSE:
Another ETF that had an initial reaction that was positive,
did not hold the gains and within 45 minutes the bond market
began to fall again. A taper would likely lead to higher interest
rates, which would lead to lower bond prices and lower prices for
TLT. But due to the low amount for the taper it appears the
market is torn as to which direction bonds go in the near
The Fed did make it clear that the Fed Funds rate would remain
low for what appears to be the foreseeable future. It is also
clear that interest rates will eventually increase as the Fed
stops artificially keeping them down. TLT could be in for a wild
ride over the next couple of weeks with the longer-term trend
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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