U.S. equities and stock exchange traded funds increased Wednesday ahead of the Federal Reserve announcement as the markets widely anticipated the first interest rate hike for the year.
The S&P 500 Index, along with related funds including the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and Vanguard 500 Index (NYSEArca: VOO), were 0.4% higher Wednesday.
The Fed is scheduled to announce its latest policy statement along with its economic projections at 2 P.M. ET. Looking at the Fed fund futures, options traders have priced in more than a 90% chance of a quarter point hike.
The economy has shown improvements, with the labor market near full employment and inflation rising. Many also anticipate the Donald Trump administration may enact a number of expansionary policies, which could cause the Fed to raise rates at a quicker pace.
“Overall expectations are largely priced in that we will have a hike today and the question will be if the Fed will be a little bit more hawkish,” Myles Clouston, senior director at Nasdaq Advisory Services, told Reuters. “If inflation heads in the right direction, four hikes may be warranted. The key here is the Fed really needs to stay ahead of the curve so that they’re not in a difficult position where they have to raise too quickly.”
Surprisingly, the best performing ETFs ahead of the decision were those that track gold. The VanEck Vectors Gold Miners ETF (NYSEArca: GDX) and the VanEck Vectors Gold Miners ETF (NYSEArca: GDXJ), the two largest gold miners exchange traded funds, were up 2.6% and 2.7%, respectively, while the SPDR Gold Shares (NYSEArca: GLD) was 0.5% higher, suggesting that some traders are not buying into Fed rate hike forecasts and are waiting for the decision to come down.
More aggressive traders capitalized on the Wednesday ahead of the Fed decision jump with leveraged options, such as the triple leveraged Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT), which surged 8.4%, and the triple leveraged junior gold miners Direxion Daily Junior Gold Miners Index Bull 3x Shares (NYSEArca: JNUG), which jumped 7.7%.
The ProShares Ultra Gold Miners (NYSEArca: GDXX) and ProShares Ultra Junior Miners (NYSEArca: GDJJ) take the 2x or 200% daily performance of NYSE Arca Gold Miners Index and Market Vectors Global Junior Gold Miners Index, respectively. On Thursday, GDXX increased 4.7% and GDJJ advanced 5.0%.
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