Fed’s QE Surprise Means Skyrocketing Stocks
Stocks skyrocketed on Wednesday after the Federal Reserve’s FOMC voted against initiating the taper of its bond purchases.
Stocks rocketed past the Space Station on Wednesday, following the unexpected decision by the FOMC to delay its plan to taper back the Federal Reserve’s bond purchases. The major stock indices set record intraday highs on the news, although the Russell 2000 Index did little to improve on Tuesday’s 0.96 percent advance.
It was widely anticipated that the Fed would cut back its monthly bond purchases by $10 billion to $75 billion.
The Dow Jones Industrial Average (NYSEARCA:DIA) jumped 147 points to finish Wednesday’s trading session at 15,676 for a 0.95 percent advance, after setting a record intraday high of 15,709.58. The S&P 500 (NYSEARCA:SPY) surged 1.22 percent to close at 1,725 after setting a record intraday high of 1,729.44.
In other major markets, oil (NYSEARCA:USO) skyrocketed 2.49 percent to close at $38.68. On London’s ICE Futures Europe Exchange, November futures for Brent crude oil jumped $2.38 (2.20 percent) to $110.57/bbl. (NYSEARCA:BNO). December gold futures jumped by $54.20 (4.14 percent) to $1,363.60 per ounce (NYSEARCA:GLD). Transports beat Voyager 1 to the Oort Cloud on Wednesday, with the Dow Jones Transportation Average (NYSEARCA:IYT) climbing 1.51 percent.
In Japan, stocks soared despite the fact that the exchange rate for the yen remained relatively unchanged during Wednesday’s trading session in Tokyo (NYSEARCA:FXY). The construction sector led the advance, as investors anticipated large contracts to be awarded in preparation for the 2020 Radioactive Olympics. Kawasaki Heavy Industries enjoyed a 4.7 percent stock surge, following reports that the company received an order for 676 cars from the Long Island Railroad. Sharp Corporation saw its share price spike 6.6 percent, following a report that its profits for the second and third quarters will amount to twice what analysts had estimated. The Nikkei 225 Stock Average jumped 1.35 percent advance to 14,505 (NYSEARCA:EWJ).
In China, stocks advanced on investor enthusiasm about the new free-trade zone in Shanghai. Hong Kong had a different experience on Wednesday, as stocks declined on expectations that the government will intervene once again to control an overheated real estate market, after reports for August indicated rising prices. The Shanghai Composite Index advanced 0.29 percent to 2,191 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index declined 0.27 percent to end the session at 23,117 (NYSEARCA:EWH). The Shanghai Stock Exchange will be closed on Thursday and Friday for the Mid-Autumn Festival and the Hong Kong Stock Exchange will be closed on Friday.
In Europe, stocks advanced on a number of analyst upgrades, arriving at a point when the regional economy is on a steady rebound. Credit Suisse upgraded Nokia to “outperform” from “neutral” as the company is re-establishing its presence in the global cell phone market. The world’s largest clothes retailer (which you have never heard of) Inditex, rose just over one percent after reporting that third quarter sales jumped 10 percent.
The Euro STOXX 50 Index finished Wednesday’s session with a 0.62 percent advance to 2,908 — climbing further above its 50-day moving average of 2,785. Its Relative Strength Index is 68.28 (NYSEARCA:FEZ).
Technical indicators revealed that the S&P 500 rose further above its ever-increasing, 50-day moving average of 1,676 after finishing Wednesday’s session with a 1.22 percent jump to 1,725. Its Relative Strength Index soared from 66.50 to 72.13. Because most investors consider an RSI above 70 in the “overbought” range, we could see a slight pullback. The MACD continues to rise above the zero line and the signal line has crossed above the zero line, suggesting the likelihood of a further advance.
For Wednesday, all sectors were solidly in positive territory, The utilities sector led the group, with a gain of 2.98 percent.
Consumer Discretionary (NYSEARCA:XLY): +1.15 percent
Technology: (NYSEARCA:XLK): +1.16 percent
Industrials (NYSEARCA:XLI): +1.26 percent
Materials: (NYSEARCA:XLB): +2.31 percent
Energy (NYSEARCA:XLE): +1.21 percent
Financials: (NYSEARCA:XLF): +0.88 percent
Utilities (NYSEARCA:XLU): +2.98 percent
Health Care: (NYSEARCA:XLV): +0.62 percent
Consumer Staples (NYSEARCA:XLP): +1.19 percent
Bottom line: Stocks skyrocketed on Wednesday after the FOMC voted against initiating the taper of its bond purchases, surprising everyone and causing a massive short squeeze.
John Nyaradi is the author of The ETF Investing Premium Newsletter.