SPY Soars and EWU Rises on August 26
Markets are showing signs of rebound
The SPDR S&P 500 ETF (SPY) rose by 3.84% on Wednesday, August 26. The day saw the upward movement of 487 out of the 502 stocks in SPY. The graph below shows the returns of all the component sectors on August 26 in contrast to the yields of August 25, 2015.
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Cameron International (CAM) was the top gainer for the day. It recorded a whopping 41.11% return on August 26. Netflix (NFLX) and Google (GOOG) recorded a return of 8.48% and 8.0%, respectively. Mallinckrodt (MNK) from the healthcare sector and Monsanto (MON) from the chemical industry yielded 9.10% and 8.57%, respectively, on August 26.
What turned the market around in a day?
The market was looking for a ray of hope after the six-day-long turmoil faced by stock markets across the globe. The Chinese government is taking all possible corrective measures to prevent further financial losses in the equity market. The recovery of Chinese markets is critical to the Chinese economy and the countries exposed to China’s economy through trade.
The Fed’s statement on the expected rate hike might have a positive impact
Markets were also moved by William Dudley’s statement at a news briefing in New York. Dudley finds a potential interest rate hike in September “less compelling.” William Dudley is a member of the Federal Open Market Committee, which decides the monetary policy of the US in conjunction with the Federal Reserve.
The key rate in the US has been at the zero lower bound (that is at near zero levels of 0% to 0.25%) for a while now. Dudley’s statement reassures investors in regards to the delay in the rate hike. This will consequently boost the US equity market. The monetary policies and the Fed’s rate-related decisions play a key role in the US economy. In such a volatile situation, the Fed doesn’t want to act restrictively by raising the rates. Instead, the Fed wants the markets to recover through more money flow in the system.
In the next article we will analyze the impact of monetary policy on the economy.