Markets, ETFs Approve Of Fed Statement

Major Markets and Index ETFs rose yesterday in support of the FOMC Statement and Dr. Bernanke’s Press Conference.  The S&P 500 rose .87%, the Dow Jones Industrial Average rose .64%, the NASDAQ rose 1.14%, and the Russell 2000 Index rose .93% yesterday as Dr. Bernanke and the Federal Reserve released interest rate and inflation targets designed to assist a fragile economic recovery.  Major index ETFs followed suite as the SPDR S&P 500 ETF (NYSEARCA:SPY) rose .84%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) rose .62%, the PowerShares QQQ Trust Series 1 ETF (NASDAQ:QQQ) rose 1.26%, and the iShares Russell 2000 Index ETF (NYSEARCA:IWM) rose .85%.

What did Dr. Ben and his Fedsters have to say yesterday?  According to the FOMC Statement for January 25th, 2012, the Fed plans to extend the Federal Funds “near zero” interest rates until at least mid 2014, which would mean more really cheap money intended to keep the economic recovery, well, recovering. 

In Dr. Ben’s press conference, he also outlined a 2% inflation rate target, alongside the possibility of another quantitative easing session if needed.  Dr. Ben also sited the housing sector and Europe as the major drags on America’s “moderate growth;” the committee vowed to strive for maximum employment and price stability despite these factors.  The real stickler was the release of each member’s forecast for interest rates hikes, which was apart of the Fed’s efforts to increase transparency.  The general consensus among members was that interest rates could not be raised until mid 2014, if not later.

After the Chairman finished speaking, he was grilled by reporters for at least 45 minutes, and the common theme was despite data suggesting a renewed economic recovery, why so long to raise rates?

Although Dr. Ben was very diplomatic, it was relatively clear to see that the housing sector and Europe are the two largest threats to our economic recovery.  Europe, in particular, has a very large chance of taking us all down very hard, and the US economy’s growth as of now is likely still too fragile to maintain a European blow out.

All in all we are far from being out of the woods still, despite mixed reports on the housing sector released yesterday, our current bull market, and all of the Fed’s really cheap money.  How long will it last?  Ask the Europeans, as there were cloudy skies in Davos, Switzerland yesterday, where the World Economic Forum is meeting to discuss a possible European solution.  Cloudy skies over Europe is still an understatement for this situation.

Despite the fact that major market indices and ETFs responded so lightly to the Fed statements, Gold and Silver ETFs had a field day, as the gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) bugs are now certain that weak dollars will yield high profits in precious metals.  As expected, US Dollar ETFs lowered a few points.

The NASDAQ also had more of a field day than its Dow and S&P counterparts, likely because of Apple’s (NASDAQ:AAPL) earnings report released Tuesday.  Netflix (NASDAQ:NFLX) also made headlines after hours, as the internet video provider gained 14% in fourth quarter compared to 2010, so it is likely that NASDAQ:QQQ and the Technology SPDR ETF (NYSEARCA:XLK) might pop again today.

Bottom Line:  Yesterday’s FOMC statement and Dr. Ben’s actions and words suggest that the US Economy is indeed improving, although is not sustainable and is extremely vulnerable to foreign attack, specifically a European explosion.  Perhaps because of record low interest rates and quantitative easing, the economy is growing, or at least it appears to be growing and will hopefully shield us from abroad disasters.  Dr Ben better get it right!

Disclaimer: Wall Street Sector Selector trades a wide variety of ETFs and positions can change at any time.