Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
Today was the day of the long-awaited September Federal Open Market Committee meeting, and investors far-and-away love what they heard, sending the S&P 500 (INDEX: ^GSPC) shooting higher to a new all-time record close.
The question on all investors' minds as we headed into today's announcement would be whether or not the Federal Reserve, given the predominantly positive economic data we've witnessed of late, would begin paring back its $85 billion in monthly bond purchases. This monthly buying program, affably known as QE3, is largely credited as a driving force behind keeping lending rates near historic lows and helping to put a floor under the housing industry. For at least a few more weeks, we have our answer.
The FOMC chose not to begin tapering QE3, stating that recent economic data has not proven sufficient to begin scaling back its ongoing stimulus. In addition, Fed Chairman Ben Bernanke noted that uncertainties involving the upcoming fiscal debates (i.e., the debt-ceiling debates) could factor into its future decisions on whether or not to taper.
With spirits lifted, nearly every sector was off to the races today, pushing the S&P 500 higher by 20.76 points (1.22%) to an all-time closing high of 1,725.52 -- its 11th gain in the past 12 days!
Leading the S&P 500 higher on this record day is cloud-computing software developer Adobe Systems (NASDAQ: ADBE), which advanced 9.2% after reporting its third-quarter earnings results. As has been the case in recently, Adobe's EPS fell short of the Street's expectations, but the company received a free pass given that its cloud-subscriptions surpassed 1 million subscriptions by the end of the quarter, adding 331,000 total subscriptions over the sequential quarter. With 41% of Adobe's revenue now recurring, investors are beginning to see the benefits of consistent cash flow, but I would urge caution with Adobe valued at a frothy 31 times forward earnings.
As you might have suspected, another top performer within the S&P 500 following the FOMC's announcement is gold miner Newmont Mining (NYSE: NEM), which gained 8.2% on the day. The surge comes on the heels of a huge spike in gold prices of $50 an ounce thanks to the announcement. The reason gold rose as much as it did is that the continuation of QE3 adds $85 billion in fresh money to the money supply every month, presumably devaluing the existing monetary supply and introducing the possibility for future inflation. This would be a scenario where gold would be viewed as a strong hedge, thus the big rise in gold prices. It's certainly a good day for Newmont shareholders, but cutting costs remains a paramount concern for gold miners over the intermediate time frame.
Finally -- and this should also really come as no surprise -- homebuilders rocketed higher, with Lennar (NYSE: LEN) gaining 6.5% and D.R. Horton (NYSE: DHI) slightly outdoing its peer for the third-best performance within the S&P 500, up 6.9%. The potential for tapering has been a big worry for homebuilders which rely on low interest rates to drive prospective homebuyers to purchase. Ever since the Fed hinted at the possibility of tapering QE3 in early May interest rates have jumped about 120 basis points and mortgage application activity, including refinancing, has fallen 59%! The thought process here is that as long as QE3 is on the table, interest rates have a good chance of staying near record lows, giving on-the-edge homebuyers the nudge they need to make their purchase. Alternatively, we know that a Fed tapering is coming at some point, so today's pop may wind up being short-lived for the homebuilding sector.
Will this gold rally continue?
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