Exchange traded funds rallied across the board after the
Federal Reserve fired off another round of economic stimulus.
The Fed said it would buy $40 billion per month of agency
mortgage-backed securities, MBS, and it would hold interest rates
"exceptionally low" to mid-2015.
"This program is both appropriate and more aggressive than
markets were expecting," said Ryan Sweet, senior economist at
Moody's Analytics in Westchester, Pa. "The Fed is hoping to
jump-start the housing market, which has been weak and unable to
help spur the recovery. An open-ended QE (quantitative easing)
program also will allow the Fed to ramp up monetary stimulus as
the nation nears the fiscal cliff of tax hikes and federal
spending cuts in January."
SPDR S&P 500
) jumped 0.80% to a fresh five-year high.
PowerShares QQQ (
), tracking the 100 largest nonfinancial stocks on the Nasdaq,
rose 0.96% to a new 12-year high.
SPDR Dow Jones Industrial Average (
) advanced 0.68%, climbing within 5% of its all-time apex from
"Welcome to another round of an artificially induced,
liquidity-driven bull market that will wax and wane until such
time as the organic drivers of economic growth can overwhelm the
secular forces of deleveraging," said Alan Zafran, partner at
Luminous Capital in Menlo Park, Calif. "In other words, it's
tough to fight the Fed."
"Low interest rates, low to moderate inflation expectations
and even sluggish growth allow businesses room to profit," said
Andre Weisbrod, CEO of STAAR Financial Advisors in Pittsburgh.
"It's better than another contraction. But this may only last a
year or two."
Where To Invest Now
This third round of quantitative easing should boost prices in
gold, basic materials and financials, said Sam Subramanian, chief
investment officer of Alpha Profit Investments in Sugar Land,
Texas. Hard asset prices appreciate when the dollar weakens.
PowerShares DB U.S.
Dollar Index Bullish (
) plunged 0.46% to its lowest level since May.
"This is a positive for stocks in the near term," he said.
"Over the long term, the effectiveness of the Fed's approach will
determine the course for stock prices."
The largest ETFs tracking these sectors outshined the
SPDR Gold Shares (
) vaulted 2.15% to a six-month high.
Financial Select Sector SPDR (XLF), rose 1.48%, advancing to
just a hair below its 52-week high from March.
Materials Select Sector SPDR (XLB) jumped 2.35%. It's now 2.4%
above a 36.73 buy point in a bullish cup-with-handle pattern.
Cyclical and high-volatility stocks such as technology,
industrials and materials will benefit most, says Charles Lewis
Sizemore, founder of Sizemore Capital in Dallas.
"While the economy is slowly improving, (Ben) Bernanke fears a
relapse into deflation," Sizemore said. "This means he'll err on
the side of dovishness."
Industrial Select Sector SPDR (XLI) leapt 0.94%. It cleared a
37.49 buy point in a classic cup-with-handle pattern.
Technology Select Sector SPDR (XLK) flew 1.24% to an 11-year
QE3 has no shortage of critics who contend it won't truly spur
growth and will merely push economic pain into the future, which
could be brutal for the market.
"When it comes to the math of structural debt, this does
nothing to solve the looming crisis; it only delays it," said
Weisbrod of STAAR. "Maybe that's OK if delay allows time and the
governments actually use that time to tackle the debt problem
with honesty and practicality."
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