Tech, Biotech ETFs Lead Market's Jump To New Highs
Technology and biotech ETFs fronted the U.S. stock market's rally to a historic high Wednesday as the Federal Reserve minutes, released five hours early, showed Fed officials agreed that the current quantitative easing program should continue for a few more months.
But several investment strategists said they're skeptical that the Fed-juiced market could climb much further given the weak economic backdrop.
IShares S&P North American Technology Multimedia Networking Index ( IGN ) jumped 2.85% to 29.16, fueled byJDS Uniphase ( JDSU ) andJuniper Networks ( JNPR ), each of which surged almost 5%. Juniper announced that it received a contract from Belgacom, the largest telecom provider in Belgium, to provide routers for cloud computing systems.
SPDR S&P 500 (SPY) added 1.22% to 158.67 -- a fresh all-time high.
PowerShares QQQ (QQQ), tracking the 100 largest nonfinancial stocks on the Nasdaq, popped 1.94% to 70.01. It appears to have broken out of a bullish cup-with-handle base chart pattern. It ended just a smidge above a 69.12 buy point.
SPDR Dow Jones Industrial Average (DIA) rose 0.87% to 147.78 -- a fresh high.
"Part of the enthusiasm in stock markets today is very likely related to the fact that the Fed has been discussing a timeline to the end of a near-zero Fed funds rate," Carlos Guillen, an analyst at Wall Street Strategies, a New York-based stock market and equity research firm, wrote in a client note.
"While there has not been a definitive date set, investors are seeing this as an indication that they need to start moving money from safer long-term bonds into stocks very soon," he added.
The Fed instills investor confidence in the stock market at a time when a lot of the underlying economic data aren't stellar, said Brad Reynolds, chief investment officer at LJPR Inc. of Troy, Mich., with $525 million in assets under management. "The Fed has its foot pressed on the accelerator and isn't looking to remove its foot soon," he said.
The ISM manufacturing index showed activity slowing, while only 88,000 jobs were created in March. That's far short of the 150,000 new jobs needed to keep with natural growth in the workforce, Harry Dent, founder of HS Dent, an economic research firm in Tampa, Fla., wrote in a client missive Wednesday.
"More important, over 600,000 people left the workforce. Now, the question is how persistent the slowing will be as payroll tax hikes have clearly hit, but marginal tax rate hikes begin to hit along with government spending cuts," Dent wrote.
Dent recommends shorting the market by buying inverse ETFs,ProShares Short S&P500 (SH) Direxion Daily Small Cap Bear 3X Shares (TZA), unless the S&P 500 soars above 1600, or 160 for SPY.
Foreign Markets Still Lag U.S.
IShares MSCI EAFE Index (EFA), tracking developed foreign markets, gapped up 1.48% to 60.08 -- its highest level in a year and nine months. It's lagged the U.S. market since the bull market started in March 2009 and is still a far cry from regaining its pre-financial-crisis high. It trades above both its 50- and 200-day moving averages, indicative of a strong uptrend.
French industrial production in February rose 0.7% from the month before but fell 2.5% from a year earlier. Although that beat consensus forecasts, it confirms weakening activity, Waverly Advisors wrote in a client note.
IShares MSCI Emerging Markets Index (EEM) hopped 0.96% to 42.49. Lagging developed markets, it's corrected 6% from its 52-week high. It is trading above its longer-term 200-day average but below its shorter-term 50-day moving average, indicating a weak uptrend.
"When the U.S. looks fine but money is flowing out of the rest of the world, the message is that someone pulled the plug on the liquidity bathtub," Tom McClellan, founder of the McClellan Market Report wrote in his newsletter Wednesday.
"The rest of the world's markets are already saying that there are liquidity problems, in spite of the money printing that the Federal Reserve is doing," he added. "Perhaps $85 billion per month is just not enough."
Chinese exports shrank 10% year over year, with shipments to the U.S. and Europe falling year over year.
Market Vectors Gold Miners ETF (GDX), down 3.83% to 34.65, led the losers' list. It's been downtrending since September and has corrected 37% from its 52-week high, far surpassing the 20% correction that defines a bear market.
Gold Loses More Luster
SPDR Gold Shares (GLD) slipped 1.68% to 150.77.
"It is puzzling that gold and silver are not rallying more than they are given Japan's announcement of stimulus that is more than 2.5 times the QE in the U.S. when adjusted for the size of its economy," Dent wrote. "This almost certainly will evoke stimulus responses from South Korea and China, its closest export competitors in manufacturing. In fact, this could set off a currency trade war similar to the tariff wars in the 1930s that worsened that depression."
Gold is forming a major bottom that occurs every 13-1/2 months, says McClellan.
"It is not actually due until May, but it is also not precisely punctual. It can come a month early or late, and still be considered on time," McClellan wrote.
The commitment of traders report shows commercial traders, considered the smart money, to be bullish and have proven to be right eventually every time, McClellan added.
Follow Trang Ho on Twitter @TrangHoETFs .