ETF Investors Hear Dovish Bernanke Talk

July 12, 2013

Bernanke’s latest comments suggesting the punch bowl isn’t going anywhere yet stokes stocks.


The global equities markets seem to like the idea of easy-money policies. Several major benchmarks this week, from the S&P 500 to Japan’s Nikkei to emerging markets indexes, rallied—some to fresh records—on the heels of Federal Reserve Chairman Ben Bernanke’s reassurance that even as the U.S. economy grows, interest rates will be kept low for as long as necessary.

The comments, which some viewed as a reversal from his earlier language suggesting the end of the easy-money era might begin to take shape as early as this year, were welcomed by a market fearful of prospects for higher interest rates and possible inflation. That’s the same market that not too long ago was selling off in response to Bernanke comments about “tapering” the Fed’s bond-buying program.

The reality is that nothing appears to have really changed, as some industry sources have suggested, but the markets can choose to interpret the same news in different ways.

The U.S. economy continues to grow at a slow pace, unemployment rates remain steady at 7.6 percent, and the latest consumer confidence report shows consumer sentiment is largely unchanged, if not a tad lower, in the past month. But reassurance from the Fed seems to suffice for now, and an improving U.S. housing market also helps explain a growing sense that the U.S. recovery is in full swing.

The latest housing data released late June and compiled through April showed that an average home in the U.S. is now worth about 12 percent more than it was just a year ago, according to S&P Case-Shiller Home Price Indices.

“Housing has a disproportionate impact on consumer sentiment; it can boost investor confidence of what’s coming next,” HardAssetsInvestor analyst Sumit Roy said.

For equity ETF investors, the past five days have meant gains across the board.

The S&P 500 posted a new record-high closing Thursday of 1,675.02—some 6 points higher than its previous May 21 record closing level. The benchmark has yet to retest its intraday high of 1,687.18 reached on May 22, but it continued to inch higher Friday morning. It has posted gains of 2.65 percent in the past week.

The biggest ETF that tracks it, the $133 billion SPDR S&P 500 (NYSEArca: SPY), is also up 2.7 percent in a week, at new record high levels. That puts shares of the fund 17.5 percent higher so far this year. The $44.7 billion iShares Core S&P 500 ETF (NYSEArca: IVV) rallied 2.6 percent in the past five days alone.

The Dow Jones industrial average, too, climbed to a new record closing Thursday—15,460.92—and continued to tag on modest gains Friday, rising nearly 2.3 percent in five days. The index’s May 22 intraday high of 15,542.40 remains intact. The $735 million iShares Dow Jones U.S. ETF (NYSEArca: IYY) has rallied 3 percent in the past week.


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