Yesterday marked an interesting chapter for the QE3 'taper tale'
as the Fed surprised markets by unexpectedly refraining from
reducing its stimulus program. Consequently, it appears that as
long as the Fed continues with its stimulus measures, Wall Street
will continue to see big gains.
Reason for the 'No Taper'
The Fed refrained from tapering QE3 as it needs further evidence of
improvement in economy. According to the Fed, the economy is
expanding at a moderate pace. Also, unemployment rate remains high,
and due to changes in energy prices, inflation has run below the
Committee's longer-run objective (
3 ETFs Winner from 'NO TAPER' Shocker
The committee feels that the tightening of financial conditions
observed in recent months, if sustained, could slow the pace of
improvement in the economy and labor market.
Impact on Market and ETFs
Both the Dow Jones Industrial Average and S&P 500 Index inched
up to all-time or multi-year highs. In fact, the Dow Jones
Industrial Average and the S&P 500 peaked to close at fresh new
highs thereby surpassing the previous records of 15,658 and 1,709,
respectively. The Nasdaq increased 1% to close at a 13-year high of
In fact, investors should note that
SPDR S&P 500 ETF (
, which tracks the movement of the S&P 500, recorded a volume
surge on the news and it ended the day up over 1%.
The Fed announcement sparked sharp price reaction in the bond,
currency, and precious metal markets too. U.S. stocks rallied to
form new highs while bond yields and the dollar turned lower (
4 ETFs to Watch Ahead of Key Fed Decision
The dollar index DXY inched down 1.2% after the Fed maintained its
$85 billion monthly asset-buying program. This marks its biggest
one-day slide in more than two months.
Consequently, currency ETFs tracking the dollar also saw some of
their biggest losses in months.
PowerShares DB U.S. Dollar Index Bullish (
, measuring the dollar currency against a basket of major foreign
currencies, plunged 1% to 21.65 (
3 Currency ETFs Crushed in Emerging Market Rout
Impact on Gold and Silver
Gold usually moves inversely to the dollar. With the fall in
dollar, gold tends to move higher and the resulting no-taper
announcement by the Fed led to the fall in dollar and rise in gold
Gold ETF Falls as Fed Tapering Possibility
Gold and silver prices soared in response to the Fed's decision.
Gold prices recorded its highest gain in five years, rising 4.19%
to $1,366 an ounce in New York. Silver also increased 6.17% to
$23.18 an ounce. In fact, ETFs tracking the precious metal space
recorded solid gains.
SPDR Gold Shares (
, tracking a 10th of an ounce of bullion, increased 4% to
Market Vectors Gold Miners ETF (
experienced even higher gains at 9% increase. Fed's target to lower
interest rates and for higher inflation sets good prospects for
gold prices. GDX is the most popular and liquid product in the
space, focusing on large cap gold miners.
Volatility Index and related ETFs
Volatility levels are best represented by the CBOE Volatility Index
or the VIX. This fear gauge tends to do well when markets are
sliding or fear levels ride high. The Fed announcement obviously
had a negative impact on volatility products. VIX declined 6.47% in
yesterday trading session.
In fact, the two ETNs tracking the Index namely
VelocityShares Daily Long VIX Short-Term ETN (
iPath S&P 500 VIX Short-Term Futures ETN (
each dropped 3.7% after the Fed announcement.
This surprise decision from the Fed had a huge impact on markets
and it was responsible for some volatility in key asset classes.
There were many winners from this news, as bonds, stocks, and
precious metals all soared.
However, investors did see a sharp reduction in volatility-linked
products, as these floundered on the Fed's announcement. This trend
could continue until the next Fed meeting-assuming no shocks in
earnings season-so make sure to keep an eye on some of the above
products as the next round of taper talk inevitably gets under way
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
MKT VEC-GOLD MI (GDX): ETF Research Reports
SPDR-GOLD TRUST (GLD): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
PWRSH-DB US$ BU (UUP): ETF Research Reports
VEL-VIX ST (VIIX): ETF Research Reports
IPATH-SP5 VX ST (VXX): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for the
Next 30 Days. Click to get this free report