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?
Unemployment
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 (GE +1.96%) 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 (^GSPC +1.20%), Dow Jones Industrial Average (^DJI +1.79%), and the popular gold-tracking ETF SPDR Gold Shares (GLD +1.33%) for one month after QE1, QE2, and now QE3:
|
Event |
S&P 500 Change |
Dow Change |
Gold ETF change |
|---|---|---|---|
|
QE1 |
11% |
6.6% |
4.8% |
|
QE2 |
3% |
6.3% |
5.6% |
|
QE3 |
0.3% |
1% |
1.8% |
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 (GDX +2.74%) 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.
