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Stocks received a nice boost to start Thursday trading, as investors focused in on a recent Q&A session from Fed Chairman Ben Bernanke. The statements were made at a conference at the National Bureau of Economic Research, and were well-received by those looking for stimulus programs to continue a little longer.
In the session, the Chairman said, ‘You can only conclude that highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy’. He also stated that the current unemployment rate of 7.6% ‘probably understates the weakness of the labor market’, suggesting to many that Bernanke isn’t as hawkish as many might have initially thought (read QE Tapering Could Make These Bond ETFs Winners).
The statements also imply that tapering may not begin in the immediate future, potentially pushing a reduction of bond buying into the end of the year, if not 2014. It also suggests that even if a 6.5% unemployment rate is hit, this may not cause a rise in rates as the ‘real’ unemployment rate—especially when counting underemployment—is far higher than the 6.5% target and that more accommodation may be necessary to get back to full employment.
This news was very well received by the markets, as a number of securities took off in Thursday trading with the S&P 500 adding about 1%. However, a few corners of the market did even better on the day, and we have highlighted a few of the biggest ETF winners that surged thanks to Bernanke’s dovish comments below:
More easy money is good news for precious metal investors, as it could help to push the dollar down and increase the appeal of alternative assets. After all, gold had been doing pretty well for much of the Fed’s easy money history, though it has traded sluggishly—to put it mildly—as of late due to talk of a wind down in the QE program.
Thanks to this, gold ETFs like the SPDR Gold Trust (GLD - ETF report) and the iShares Gold Trust (IAU) both added about 2.3% on the day. This continues the recent bullish five day run for gold, though the metal is down significantly over the past three months (See ETF Asset Report for the First Half of 2013).
Silver also has many of the same safe haven properties as gold, though it also has a big industrial component as well. And with both hopes for an economy boosted by easing, and a sluggish dollar, silver has rocketed off of its lows and is once again approaching the $20/oz. level.
Silver ETFs like the iShares Silver Trust (SLV - ETF report) and the ETF Securities Silver Trust (SIVR) both outdid gold in Thursday trading. Both added about 4.2% on the session, though the funds are down 30% in the past 90 days.
Mining stocks tend to trade as leveraged plays on their underlying commodities, so when gold and silver are rising, gold and silver mining stocks soar. This was certainly the case in Thursday trading, as big gains were seen in this beaten down space.
The popular gold mining ETFs such as the Market Vectors Gold Miners ETF (GDX - ETF report) and the Market Vectors Junior Gold Miners ETF (GDXJ) both did quite well on the day, adding, respectively, 5% and 6.6%. Meanwhile, the Global X Silver Miners ETF (SIL) also posted strong gains, adding about 6% too (see A Safer Way to Invest in Precious Metal ETFs?).
Emerging Market ETFs
Emerging markets were crushed by the initial Fed comments about tapering, as a strong dollar hurt these securities across the board. However, with possibly a more dovish Fed, the dollar may face some weakness in the near term, while the risk on trade may also be back, signaling solid conditions for emerging markets investments.
Broad emerging market funds like (VWO - ETF report) and (EEM - ETF report) both added more than 3.5% on the day, but some specific countries were the biggest winners. These include a 6.8% gain for the Thailand ETF (THD), and a 4.9% surge for the South Korea ETF (EWY).
The prospect of a longer period with low rates was certainly welcomed by the homebuilder space, as mortgage rates were starting to creep higher and possibly dull housing demand. But if the Fed is going to keep easy money policies for a bit longer, homebuilders might have some more room to run.
Due to this, the focused homebuilder ETF of (ITB - ETF report) added about 4.9% on the session, helping the fund to move out of its near term bottom. Meanwhile, the broader (XHB - ETF report) homebuilder ETF also saw a good day, adding 3.4% for the Thursday session (see Are Housing ETFs Back on Track?).
The markets clearly liked the statements from Ben Bernanke and the suggestion that easy money policies are here to stay for a little longer. Pretty much every corner of the market—save some segments of the financial sector—were up on the news, with 1% gains common across the board.
However, some segments did even better with gains of at least a couple percent seen for the day. These gains were concentrated in some of the sectors that saw the biggest losses after the initial Fed panic a few weeks ago, helping these segments to rebound at least a little from their recent slump.
So if easy money continues, look for some of the aforementioned sectors to continue to move higher. However, these gains could easily evaporate if investors think the Fed may curtail bond purchases sooner rather than later, so make sure to keep a close eye on these ETFs should any new comments come from Bernanke, or if any policy changes appear likely in the near future.
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