ETFs Surging After Fed Delays Taper – GDX, SOCL, EEME
In what was a surprise to many market participants, the Fed delayed reducing their monetary stimulus at last week’s FOMC meeting. Let’s take a closer look at three ETFs that started moving higher last week…
Market Vectors Gold Miners ETF (GDX)
GDX has been hit hard by falling gold prices this year. The gold miners ETF is down 48% year-to-date. But the Fed’s decision to delay the taper sparked a rally in gold and GDX has climbed 8% last week.
What does the Fed have to do with gold?
As you know, gold is viewed as a safe haven. It’s a hedge against inflation and the falling value of the US Dollar.
The Fed’s monetary stimulus program promotes inflation and expands the supply of money debasing the currency.
Here’s the thing…
The mere mention of the Fed taper caused interest rates to rise too far too fast. And higher rates could derail economic growth.
At this point, the Fed has no choice but to continue their asset purchase program. Or they run the risk of choking off economic growth.
The ongoing Fed stimulus, as well as other similar programs from other central banks around the world, could lead to more investment in gold and rising gold prices as investors hedge against further currency debasement.
iShares MSCI Emerging Markets EMEA ETF (EEME)
EEME is another ETF that the Fed sent surging higher. It was up about 8% last week.
Why is EEME rallying?
Emerging markets had been hit hard by assumption the Fed would begin tapering and interest rates would rise. Investors believed higher interest rates would hurt economic growth in emerging markets.
As a result, foreign investors were pulling money out of emerging market stocks.
The Fed’s decision not to taper keeps interest rates low and make investing in emerging markets more attractive.
What’s more, as long as the Fed continues to pump money into the system, that money has to find a home somewhere. A portion of that money will end up in emerging markets.
Global X Social Media Index ETF (SOCL)
SOCL’s 6% rise this week makes it one of the best performing industry ETFs this week. It’s now up an eye-popping 58% year-to-date.
How long will the rally last?
Social media stocks have been on the upswing this year. The growth has been led by strong returns from Facebook (FB) up 113%, LinkedIn (LNKD) up 116%, Pandora (P) up 197%, and Groupon (GRPN) up 159%.
Social media stocks have also gotten a boost from the recent announcement that Twitter is seeking its own IPO.
This high octane growth industry benefits when investors are willing to take on more risk in search of high returns. The Fed decision to delay the taper is a clear signal the ‘risk on’ trade is the place for aggressive traders to be.
Here’s the upshot…
The initial reaction to the Fed’s decision to taper has been good for risky assets and those that benefit from low interest rates and currency debasement.
Good Investing,
Corey Williams
Category: ETFs
