Market Overview

4 ETFs For Bernanke's QE3 Tease, er, Congressional Testimony (XHB, VWO, GLD)

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Those not living under a rock know that Federal Reserve Chairman Ben Bernanke testifies before the Joint Economic Committee today. Following Wednesday's stock market rally, which was due in large part to speculation that the Fed may engage in further asset-buying programs, Bernanke now holds the cards when it comes to determining the near-term fate of riskier assets.

Other Fed members have dropped some hints about more quantitative easing and for his part, Bernanke hasn't completely ruled it out. On the other hand, he hasn't overtly endorsed the idea of QE3, either. With Operation Twist ending at the end of this month and the U.S. economic recovery still fragile, traders will be held hostage by Bernanke's comments today and any verbiage that is construed as a blow to QE3 hopes could easily send markets tumbling.

With long-term interest rates at record lows, betting on the prospect of more quantitative easing doesn't seem like a winning prospect, but traders can find ETF winners and losers for the Bernanke testimony right here.

SPDR Gold Shares (NYSE: GLD) Or the iShares Gold Trust (NYSE: IAU). Both GLD and IAU are obvious, yet important plays on Uncle Ben's comments. Spot gold was trading around $1,620 an ounce in Asian trading following a modest gain for COMEX gold on Wednesday.

This is the reality for gold bugs: Bernanke probably isn't the biggest gold fan out there, but his policies to this point have fanned the flames of gold's rally over the past several years. Does gold absolutely need more easing to move higher? No. Would gold get a lift from more easing? Yes. The yellow metal's move away from risk status could be tested tomorrow and the response will be telling about how gold will behave over the next few months.

SPDR S&P Homebuilders ETF (NYSE: XHB) It's likely that Bernanke will chime in on the health of the U.S. housing market and those comments could reduce or increase XHB's vulnerability. Prior to the start of May, XHB had been one of the better performing sectors ETFs in 2012, but this fund's constituency is just too sensitive to economic data to make this ETF durable in the current environment of bleak data points. Bottom line for traders: Bernanke will chart XHB's course on Thursday and for several days beyond.

Market Vectors High-Yield Muni ETF (NYSE: HYD) Let's wax hypothetical for the moment and say that Bernanke does overtly say more QE is on the way. That would be a killer for Treasuries and probably chase investors out of scores of bond funds, but municipal bonds could prove resilient even in the face of more easing.

Munis have proven sturdy in the face of headwinds specific to the asset class, so it's not likely Bernanke's whims will impact HYD beyond the next few days. Beyond that, if more QE is on the way, some investors will still want some bond exposure and HYD has the right combination of robust yield and low default risk to remain a solid performer.

Vanguard MSCI Emerging Markets ETF (NYSE: VWO) Emerging markets ETFs have a tendency to react to Bernanke's comments, particularly when the Fed chairman endorses an accommodating monetary policy. Down 8.1% in the past month, VWO and its rivals need all the help they can get and it doesn't matter where it comes from. The rub here is that Bernanke is the chairman of the U.S. central bank and his counterparts in the countries represented in VWO can do enough on their own to hamper this ETF.

Other emerging markets plays that Bernanke could bolster: iShares MSCI Brazil Index Fund (NYSE: EWZ), iShares South Korea Index Fund (NYSE: EWY) and the Global X FTSE Colombia 20 ETF (NYSE: GXG).

Posted-In: Long Ideas News Sector ETFs Bonds Broad U.S. Equity ETFs Short Ideas Emerging Market ETFs Futures Best of Benzinga


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