Ben Bernanke shocked the markets today. He kept the $85 billion of monthly bond purchases intact and also made clearly dovish comments during his press conference after the decision was announced.
The consensus was that there was a built-in expectation of a reduction in the bond buying program of $10 to $15 billion a month. Also the rumors of a prolonged debt ceiling debate led many to reduce exposure to stocks, or hedge their positions by going short, ahead of the announcement. As soon as the announcement was made stocks were bought across the board. The rally was actually more pronounced in the bond market. The S&P 500 gained 1.22% and the Dow climbed 0.95%.
The statement by the Fed was more dovish than anyone had expected. They said that a trigger to ease off on QE should the unemployment rate reach 6.5% was in fact not in place. They made it clear that a substantial decline in the unemployment rate would not necessarily lead to tapering. The committee also made it clear that if inflation remained below 2% the Fed would be unlikely to hike rates regardless of the unemployment rate.
Gains were across the board on heavy volume. Technology, industrials, discretionary, energy, utilities, and materials were standouts. Interest rate sensitive areas of the market had their best run in quite some time today. High dividend payers came under pressure over the past few months as interest rates went back up. The downdraft in rates today led to heavy buying in REITs, utilities, and some staples.
Cyclical areas advanced led by materials, industrials, and technology. Materials, both precious and industrial, were bought from the open. Transports were also strong from the open. FedEx reported better than expected earnings prior to the open and spiked. FedEx had released disappointing earnings for the last few quarters. Expectations were tempered this time and the release was well accepted. The stock gained more than 5% on the day.
Commodities ripped higher after the Fed announcement. Precious metals, copper, and corn were particularly strong. Gold spiked higher by more than 4% on the news that the Fed QE program would continue full speed ahead. Silver spiked by better than 6%.
Source: PFS Group
