After starting the day strong, most equity markets slumped in afternoon trading before finishing the day with a surge. This stretch of positive returns, the sixth in a row for the Dow, came after continued jubilation regarding Federal Reserve monetary policies. “There’s no question the Fed being easy continues to feed this. Easy money is creating massive misallocations everywhere, and that party can continue. As long as you have Ben the bartender manning the tap, anything is possible,” said Peter Boockvar.
Meanwhile, the Senate passed a $17.6 billion jobs bill that will exempt businesses from paying 6.2% payroll taxes on new employees that had previously been out of work. The measure is designed to lower the 9.7% unemployment rate ahead of November’s midterm elections, and may have also helped to buoy markets.
One of the day’s biggest winners was iShares FTSE/Xinhua China 25 Index Fund (FXI), which finished higher by 1.6%. This uptick was largely due to abating fears over a rate hike by the Chinese Central Bank. Most now see the likelihood of China raising rates in the near future as slim to none thanks to the Fed’s inaction on Tuesday afternoon. This helped to increase demand for Chinese equities, especially FXI, which surged higher on above average volume.
Wednesday’s biggest loser was iPath S&P 500 VIX Short-Term Futures ETN (VXX) which continued its losing streak by shedding 3.4% in today’s trading. VXX has been on a significant downward slide this week as the Fed vowed to keep interest rates steady, calming the fears of many traders. “A lot of the short-term traders aren’t participating because we don’t have the volatility,” said Jeffrey Friedman, senior market strategist at Lind-Waldock. He noted the CBOE Market Volatility Index is trading under 20 for the third week in a row. VXX is now down more than 34% since the beginning of the year.
Disclosure: No positions at time of writing.