Will Bernanke’s Jackson Hole Speech Save Stock ETFs?
August 19th 2011 at 4:49pm by Tom Lydon
Stock exchange traded funds have suffered four straight losing weeks in the current tailspin. Markets are shaky again this year as Federal Reserve Chairman Ben Bernanke prepares to deliver his speech at the Kansas City Fed Symposium at Jackson Hole.
Last year, stocks embarked on a multi-month rally after the Fed chief in late August hinted at the second round of quantitative easing, or “QE2,” at Jackson Hole. The Fed’s stimulus program expired at the end of the second quarter, and markets have been rocky ever since. [Third Quarter Outlook: Life After QE]
Bernanke’s speech is on Friday “and everybody’s hoping that, just like last year, Ben Bernanke will respond to market turmoil by unwrapping a big, shiny present for the market in the form of some kind of stimulus,” reports WSJ.com’s MarketBeat. “The market might get its heart broken.”
All Star Charts notes that QE2 was good for stocks and gold, but bad for ETFs that invest in U.S. Treasury bonds. However, since the end of June, stock ETFs have tanked while gold and Treasury funds have soared.
Over the past year, SPDR S&P 500 (NYSEArca: SPY) has risen 6.3%, iShares Barclays 20+ Year Treasury Bond (NYSEArca: TLT) has gained 10.1%, and SPDR Gold Shares (NYSEArca: GLD) has jumped 47.8%, according to Morningstar data. [Treasury ETFs Volatile on ‘QE3’ Talk]
“On one hand, QE2 added to the U.S. market. On the other, a lot of the liquidity fled and went into emerging markets and commodities, and those commodities, including oil, went higher in price,” commented Ashish Shah, head of global credit at AllianceBernstein, reports Steven J. Johnson for Reuters. “So you actually robbed consumers of purchasing power.”
However, once QE2 ended, gold spiked, and equities took a dive as investors also sought the safety of Treasuries.
Michael Cheah, senior portfolio manager at SunAmerica Asset Management, believes that QE3 will be right around the corner if the economy takes another hit. The Fed has more room to inject money into the system, he thinks, with inflation and wage growth still depressed, although the U.S. inflation data this week was hotter than expected.
“I think quantitative easing is only creating the illusion of prosperity but my job is to trade that illusion,” Cheah remarked. “That makes me bullish stocks.”
Full disclosure: Tom Lydon’s clients own GLD.
Max Chen contributed to this article.
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