After starting the month off with moderate gains, major ETFs
yo-yoed up and down after the Federal Reserve refrained from
taking on more economic stimulus following its two-day meeting.
The Fed said it would keep short-term interest rates near zero
until late 2014. But it reiterated its pledge to stimulate growth
if the job market doesn't improve.
"In a bit of a surprise move, the Federal Open Market
Committee decided to maintain the status quo," Ryan Sweet, senior
economist at Moody's Analytics, said. "The Fed's statement shows
policymakers are not pleased with the recovery and they
downplayed some of the improvement in the housing market."
The odds of the Fed enacting QE3, or a third round of
quantitative easing, in September are lower but that could change
depending on Friday's nonfarm payroll employment report, Sweet
"A radical monetary initiative announced today might seem like
an overreaction and a waste of increasingly scarce policy ammo if
Friday's employment report isn't too weak," Ed Yardeni, president
and chief investment strategist at Yardeni Research, wrote in his
The most important take-home message from the Fed's
announcement was that it acknowledged the U.S. economy is growing
slowly and that it's possible it will take on more stimulus if
the data continue to weaken, said Jim Russell, chief equity
strategist at U.S. Bank Wealth Management in Cincinnati.
SPDR S&P 500
) ended the session down 0.11%.SPDR Dow Jones Industrial Average
) lost 0.22%.PowerShares QQQ (
), a basket of the 100 largest nonfinancial stocks on the Nasdaq,
IShares MSCI EAFE Index (
), tracking developed foreign markets, was nearly flat.IShares
MSCI Emerging Markets Index (
) rose 0.18%.
More volatility can be expected following Thursday's
announcement from the European Central Bank.
Paul Schatz, president of Woodbridge, Conn.-based Heritage
Capital, says he has no doubts that the Fed will enact at least
three more rounds of QE, popularly known as printing money. It's
just not happening as fast as the market would like.
"Markets are like crack addicts that just want more and more
and more without hesitating," Schatz said. "The data are not
falling off the cliff. They are just mediocre. And this is what
happens during post financial crisis recoveries."
Other market watchers say there isn't more the Fed could do
because most of the U.S. economic problems are born out of the
European debt crisis and looming fiscal cliff, which it has no
control over. The fiscal cliff refers to the looming year-end
choice before the government to let tax cuts expire and
across-the-board spending cuts take effect or to increase the
budget deficit and government debt beyond already record
"The resolution of both these issues would be a boon to
consumer confidence, the markets, and perhaps the economy," said
Ethan Anderson, chief investment strategist at Rehmann. "In the
meantime, it has put in adequate shock absorbers as demonstrated
by economic and employment growth (albeit muted). If the
situation gets worse, they will be prepared to do more, but for
now the people that can have the most influence on the economy in
the near term are the politicians."
What To Do With Your Money Now
The age of cheap money will reign for the foreseeable future,
given that the Fed pledged to keep interest rates low through
2014. That may be a boon for homebuyers but torturous for banks
and financial service providers, which will struggle to profit
money from lending money.
"This is not the time to put new money to work with the banks
and financial stocks, as they will continue to look cheap as
their share prices decrease," said Ronald Lang, a principal at
Atlas Wealth Management.
Lang recommends investing in dividend-paying ETFs such asSPDR
S&P Dividend (SDY),Vanguard Dividend Appreciation
(VIG),Vanguard High Dividend Yield Index (VYM),
iShares S&P U.S.
Preferred Stock Index (PFF) andPowerShares Financial Preferred
He figures that so long as global economies continue to slow
and Europe is in a recession, foreign investors will also likely
seek out safety and income in U.S. dividend paying stocks and
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