From emerging-market bonds to developed-nation currencies, the ripples from Jerome Powell’s comments on interest rates barreled through markets in seconds.
The Federal Reserve chairman, who warned in October that monetary policy was “a long way from neutral,” said Wednesday at the Economic Club of New York that interest rates are “just below” the neutral range. That was enough to send a disparate set of stocks, bonds, currencies and commodities spinning.
Momentum Shines
Momentum shares, among the biggest losers during the six-week slump in U.S. equities, soared after Powell assuaged rate concerns. The iShares Edge MSCI USA Momentum Factor ETF rallied 3.4 percent in its best day since August 2015. Amazon.com Inc., the second-biggest constituent of the fund, rallied 6.1 percent, while Microsoft Corp., the biggest holding, advanced 3.7 percent.
“With increased likelihood that the rate hiking days are short lived, investors are likely to embrace risk-on strategies like MTUM,” said Todd Rosenbluth, director of ETF research at CFRA Research. “This is a tech and consumer discretionary-oriented fund though it is soon to rebalance and likely add heath-care. Unlike traditional growth ETFs like Vanguard Growth, this ETF is not locked into certain sectors.”
Emerging Markets On a Roll
Powell’s dovish remarks weakened the dollar and boosted emerging assets shunned for months amid escalating trade tensions and growth uncertainty. MSCI’s emerging markets equity index advanced 1.2 percent, while 17 out of 24 developing nation currencies rose. The largest exchange-traded fund tracking stocks rose 2.4 percent.
“It’s mostly due to FX," said Andy Wester, senior investment analyst at Proficio Capital Partners. "The dollar index fell quite a bit on his comments, which has been a problem for EM companies of late. Also, there’s a good chance something on tariffs gets done this weekend at the G20."
Junk Time
As developing equities enjoyed the Fed-fueled rally, so did high-yield debt. The $7.1 billion SPDR Bloomberg Barclays High Yield Bond exchange-traded fund rose 0.8 percent in the biggest advance in more than a year. The fund had posted three consecutive monthly outflows as investors flocked into safer assets.