Most investors expected today to mark the beginning of the Fed tapering program. Investors were looking for a roughly $10 billion reduction in the Fed’s $85 billion/month in purchases, if not larger.
Instead, the Federal Reserve refrained from starting the taper, keeping the current bond buying program intact. The FOMC said that they wanted to see more evidence of economic growth before reducing the bond buying, suggesting that some of the recent sluggish data—along with fiscal uncertainty from D.C.—played a role in the ‘no taper’ decision.
The postponement of the taper did have a very positive impact on stocks and commodities, pretty much across the board. The S&P 500 moved higher by about 1% following the news, while other major benchmarks also rose about 0.75% after the announcement.
Meanwhile in the commodity world, oil jumped by about 2.5% while gold and other metals saw similar performances. Treasury bills also moved higher, pushing yields on the 10 year below 2.75%, with current yields holding below the 2.70% mark (read Forget Interest Rate Risk with These Bond ETFs).
Beyond these broad markets though, investors saw some extreme strength in a few key corners of the investing world. These managed to lead the way higher following the surprise decision from the Fed, and could be worth a closer look by investors who think that this is just the beginning of the taper delay discussion.
All three highlighted below moved higher by at least 3% following the Fed announcement, and thus look to be very sensitive to any future changes in outlook from the central bank. However, for now, these are leading the way higher and could be worth further inspection following this surprising non-move by the Federal Reserve:
3 Biggest Winners Following the No Taper Announcement
iShares MSCI Emerging Markets ETF (EEM)
Emerging market investments were hammered by talk of a Fed taper earlier in the year, and many have yet to recover. Higher rates in the U.S. along with a stronger dollar dulled the appeal of emerging markets around the globe, leading many to sell their shares.
However, with the no taper announcement, emerging markets were seen as a big winner, rising on the day. This is because rates retreated while the U.S. also slumped, suggesting that tightening was at least another couple of months off, pushing interest back into the emerging market space (read 3 Emerging Market ETFs Still Up in 2013).
Thanks to this, EEM, one of the most popular emerging market ETFs, was up about 3% on the session, while hard hit nations like Indonesia (EIDO) surged 8.5%, though this was obviously an extreme case.
Market Vectors Gold Miners ETF (GDX)
A delay in the taper was also seen as good news for gold, pushing gold bullion ETFs like GLD and IAU up about 2.7% on the day. While gold is generally viewed as a risk-off type of commodity, this move higher can be traced to easy money policies, and a weak dollar.
After all, the dollar struggled against many world currencies following the news, pushing hard asset demand up for the session. The lack of a taper also called into question how long any eventual bond reduction might take, suggesting to some that precious metals might be worth a closer look in the near term (see Gold Mining ETF Investing 101).
In particular, a look at miners has clearly paid off lately, especially when considering the most popular ETF in the space, GDX. This fund surged by nearly 8.8% on above-average volume, and was clearly a great pick ahead of the meeting, and could remain so if gold interest remains high.
iShares U.S. Home Construction ETF (ITB)
One segment of the economy that has been hurting under higher rates is undoubtedly housing. As mortgage rates continue to rise, home affordability becomes a question for many, pushing down interest in the housing market.
However, with the Fed’s lack of a taper and the resulting decline in interest rates, there is hope for the housing market once more. This is especially true if rates continue to decline, or at least hold steady at the current levels, allowing more potential buyers to get in on the market (read the Comprehensive Guide to Homebuilders ETFs).
Thanks to this speculation, housing stocks and ETFs soared on the day too, easily rising more than the overall market. One fund to keep an eye on here is definitely ITB as this targeted home builder ETF jumped by nearly 5% on the day, and could be poised for more gains if there are additional delays for tapering in the future.
Bernanke shocked the markets by postponing the taper once again, choosing instead to keep the $85 billion bond purchasing program in place. This was pretty surprising, as many though that at least a modest taper would begin today, sending markets shooting higher in the process.
While most stocks and commodities rallied on the news, there were a few clear winners who benefited more than most. These include gold miners, home construction, and emerging markets, and all three look to remain in focus as more information is digested regarding this surprise ‘no-change’ move from Ben Bernanke and the rest of the FOMC.
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