Stimulus Status Update: How's the Economy Really Doing?

It's been about a month since Federal Reserve Chairman Ben Bernanke announced another round of quantitative easing to spur economic activity and reduce unemployment. Some call it "QE3" after its sisters, "QE2" and "QE1." Others call it "QE Infinity" after Bernanke said the Fed could spend $40 billion a month buying mortgage debt until conditions improve -- potentially a long time.

How have things changed since the announcement of a third QE?


U.S. Unemployment Rate data by YCharts.

It might be a stretch to say that in a month, quantitative easing affected unemployment. It's a long chain of events that starts with a company looking for a higher return on investment, then increasing its investment in its own business, concluding to hire more labor, and actually hiring more employees. And I'm sure any recent job-hunter can attest that a month might be the shortest amount of time it takes to be thoroughly vetted by an employer.

The recent jobs report also had its fair share of skepticism, with General Electric (NYSE: GE  ) CEO Jack Welch tweeting, "Unbelievable jobs numbers..these Chicago guys will do anything..can't debate so change numbers." Even with many disagreeing with his stance, Welch continues to criticize the way the unemployment report is assembled, stating that "the possibility of subjectivity creeping into the process is pervasive."

Still, the U.S. hasn't seen 7.8% unemployment since January of 2009.

Stocks and gold
Here are the following moves for the S&P 500 (INDEX: ^GSPC  ) , Dow Jones Industrial Average (INDEX: ^DJI  ) , and the popular gold-tracking ETF SPDR Gold Shares (NYSEMKT: GLD  ) for one month after QE1, QE2, and now QE3:


S&P 500 Change

Dow Change

Gold ETF change













Source: Google Finance. QE1 beginning Nov. 25, 2008; QE2 beginning Aug. 27, 2010; QE3 beginning Sep. 13, 2012.

Both equities and gold have responded to the new round with less buoyancy than to previous actions by the Fed. This is possibly because markets had already expected such a move and "priced in" another QE before it happened because of little improvement in unemployment numbers for several months. Another explanation is that there were plenty of gains to be had from the market bottom in 2008, but now with the market near where it was prerecession, breaking into higher territory requires more than just extra liquidity. The Dow was around 8,000 when the first QE was announced, 10,000 when QE2 was announced, and 13,000 at the announcement of QE3.

An interesting note
There is one equity group that beat the S&P, Dow, and gold prices for the month following a QE announcement: gold miners. The Market Vectors Gold Miners ETF (NYSEMKT: GDX  ) gained 32% in the month following the first QE announcement, 8.5% after QE2's announcement, and almost 5% since last month's announcement. Many think gold miners are still undervalued, as gold itself doubled since 2008, while the gold miner ETF is only up 7.5%.

Long-term thinking
Investing based on macroeconomic events is extremely difficult. Even if you are right about an outcome, it may take years for it to occur. And you have to choose the right investments to profit from that future, which sometimes can't be done.

It's very early to tell just what the effects of QE3 will be, especially given its long-term nature. So far, markets seem less giddy about the most recent round of easing. Looking at gold miners, however, proves that there are still many industries and stocks where investors can earn market-beating returns. For some ideas on potentially market-beating stocks, take a look at our free report: "Middle-Class Millionaire-Makers: 3 Stocks Wall Street's Too Rich to Notice." To get your copy, just click here.

Fool contributor Dan Newman thinks quantitative easing could use a more marketing-friendly name. He does not hold shares of any of the above companies. Follow him @TMFHelloNewman. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2053397, ~/Articles/ArticleHandler.aspx, 10/25/2016 6:49:33 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,169.27 -53.76 -0.30%
S&P 500 2,143.16 -8.17 -0.38%
NASD 5,283.40 -26.43 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 4:34 PM
^DJI $18169.27 Down -53.76 -0.30%
^GSPC $2143.16 Down -8.17 -0.38%
S&P 500 INDEX CAPS Rating: No stars
GDX $24.65 Up +0.56 +2.32%
Market Vectors Gol… CAPS Rating: ***
GE $28.65 Down -0.27 -0.93%
General Electric CAPS Rating: ****
GLD $121.47 Up +0.91 +0.75%
SPDR Gold Trust CAPS Rating: **