Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

What Stock Investors Should Do Now as the End of QE Nears

Companies / Investing 2013 May 28, 2013 - 05:56 PM GMT

By: Money_Morning

Companies

Diane Alter writes: If investors needed a reminder that global stock market rallies have been goosed by the Fed's lose monetary measures, they got it.

On Wednesday, U.S. equities went on roller-coaster ride.

The Dow Jones Industrial Average, up 155 points before FOMC Chairman Ben Bernanke said the Fed could soon begin to tap the brakes, ended the day down 80.41, or off by 0.5%,.


The uncertainty of when the Fed would begin to wind down its $85 billion-a-month in asset purchases sent investors to the sidelines in a hurry.

"This is a very sensitive market and particularity sensitive to any notion that tapering will come too soon," Quincy Krosby, market strategist at Prudential Financial in New York told Reuters.

"No one wants to be selling if the data reaches the point when the Fed begins to specifically talk about tapering. The market doesn't wait for the Fed to move. It will move before. That's how it operates," Krosby continued.

Of course, we knew QE couldn't really last forever. So what should investors do?..

Here are three ways protect your portfolio as the Fed prepares to wind down almost six years of quantitative easing.

Bank on a Rising U.S. Dollar

Not surprisingly, the U.S. dollar rallied following the Fed's minutes.

Since the start of 2013, the dollar is the top performing G10 currency, rising in both risk-off and risk-on situations. The ICE Dollar index (FX: USDX) is up some 6% year-to-date, an upward trajectory that is expected to continue.

"Currencies have been held hostage by QE over the last few years," Societe General said in its recent Multi Asset Portfolio report. "Our FX strategist expects the U.S. dollar to rise against all the major currencies by the end of the year, including the euro."

Currency trading is fast and volatile, with money made and lost in seconds. At the same time, currencies can exhibit major trends lasting days, weeks or years.

PowerShares DB 3X Long US Dollar Index Futures ETN due Oct. 31, 2020 (NYSE: UUPT) allows investors bet on rising greenbacks via a less volatile trading vehicle. The exchange traded product has a market cap of $4.42 million; daily volume is roughly 207,000; and its 52-week range is $19.29-$23.70.

A wager on a falling euro is another way to take advantage of a rising dollar. ProShares UltraShort Euro ETF (NYSE: EUO) is one option.

Buy U.S. Cyclical Stocks

When the Fed does take the first step to reduce QE, it will occur when the central bank sees significant and sustainable improvement in the overall economy and job market.

That's good news for cyclical stocks like auto manufacturers, airlines, steel, paper, heavy machinery and hospitality companies. When the economy is growing, cyclical stocks often surpass expectations.

And it pays to jump in early. Many in the sector start to show signs of improvement months before an economic upswing. Data from S&P IQ Capital shows the best time to buy this sector is just before interest rates rise, a period when cyclicals tend to outperform growth stocks.

Some cyclical funds include S&P Industrial Select Sector SPDR (NYSE: XLI), PowerShares Dyn Leisure & Ent (NYSE: PEJ), Market Vector Steel ETF (NYSE: SLX), iPath Dow Jones UBS Copper Total Return Sub Index ETN (NYSE: JJC) and First Trust Exchange Traded Fund II (NYSE: CARZ) an auto ETF.

Go Long Eurozone Equities

History shows U.S. economic recoveries have a positive effect overseas. The case for tapering QE is an improving American economy, hence ripple effects abroad are expected.

"Euro zone equities are more cyclical by composition and full of international companies which should benefit from positive news from the U.S.," SocGen analysts said.

Investors get broad based exposure with iShares MSCI EMU Index (NYSE: EZU), which measures the performance of countries in the Eurozone. Country specific ETFs include: iShares MSCI Germany Index Fund (NYSE: EWG); iShares MSCI France Fund (NYSE: EWQ), and iShares MSCI Sweden Index Fund (NYSE: EWD).

Source :http://moneymorning.com/2013/05/24/what-to-do-now-as-the-end-of-qe-nears/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in