Markets finally got the oversold bounce on Tuesday as the Dow Jones Industrial Average climbed 430 points after the Federal Reserve pledged to keep its key interest rate near zero until at least the middle of 2013.
SPDR S&P 500 ETF (NYSEArca: SPY) soared 4.7% after the Fed statement, but the decision to keep rates exceptionally low “at least through mid-2013” was not unanimous — there were three dissenters. The FOMC also acknowledged the recent economic slowdown.
Tuesday’s stock bounce was impressive on a percentage basis but recoups only a small part of the losses suffered over the past month. Traders will be looking for more conviction from the bulls after the initial oversold rally.
Stock, currency and bond markets were all volatile Tuesday. Treasury exchange traded funds initially surged after the Fed statement but then faded into the close.
Volatility-linked ETFs also pulled back sharply near Tuesday’s closing bell. The iPath Short Term VIX Futures ETN (NYSEArca: VXX) lost about 10% as at least some of the recent fear seemed to drain from markets late in the day.
Small-cap ETFs outperformed in Tuesday’s stock rally — iShares Russell 2000 (NYSEArca: IWM) jumped 6.7%.
In precious metals, gold ETFs moved higher Tuesday but iShares Silver Trust (NYSEArca: SLV) shed more than 4%. [Gold, Silver ETFs Diverge Before Fed]
In currencies, a Swiss franc ETF surged after the Fed statement, finishing with a nearly 5% advance. [Swiss Franc ETF]
SPDR S&P 500 ETF
Full disclosure: Tom Lydon’s clients own SLV and SPY.
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.