The broader stock markets and exchange traded funds (ETFs) are stuck in sideways trading as doubts linger on how much effect the Federal Reserve’s decision will have on the economy.
SPDR S&P 500 ETF (NYSEArca: SPY) and SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) were down about 1%, whereas the ETF that tracks the NASDAQ, Powershares QQQ Trust (NYSEArca: QQQ), remained basically flat.
The Fed will trade $400 billion in short-term securities for long-term holdings as a way to help boost the economy, reports martin Crustsinger for the Associated Press. The move could lower Treasury yields further.
“The actions the Fed has taken are helpful,” Josh Feinman, global chief economist at DB Advisors, commented. “They will help hold down long-term rates, but they’re no panacea.”
The plan would mimic a 1961 policy known as “Operation Twist” in bending the yield curve by lengthening the average duration of bonds in the Fed’s portfolio. Consequently, the program would push down yields on 10-year T-notes by 0.15% in the first month, said Chris Rupkey chief financial economist of Bank of Tokyo-Mitsubishi UFJ Ltd., reports Rita Nazareth for Bloomberg.
“We’re going to see a QE2 and a half or what folks have been calling Operation Twist,” Philip Orlando, chief equity market strategist at Federated Investors Inc., commented. “If they’re successful, a stock market rally and an enhanced wealth effect will create additional spending and job creation.”