Precious Metals and Clean Energy Lead Fed-Inspired Rally

Last week, we saw a broad-based rally despite the fact that the U.S. Oil Fund (USO) was up. This week we find the "good times" continued as the market surged after the FOMC cut interest rates (click to enlarge):

As I am sure everyone is already aware, Ben Bernanke and the Fed cut both the fed funds rate and the discount rate by 50 basis points. This spurred a strong pop in the market and that aftermath can be seen here. More than 90% of the ETFs on my list ended higher with a number of healthy gains.

The strongest performance seemed to be centered on ETFs related to energy, gold, and basic materials. Bonds moved lower after the FOMC announcement and the iShares Lehman 20+ Year Bond Fund (TLT) was the weakest ETF on my list. The SPDR Homebuilders ETF (XHB) showed a strong rally immediately after the rate cut but saw those gains vanished as the week wore on, leaving the XHB with a slight loss on the week.

In last week's column, I noted the lackluster performance of the PowerShares WilderHill Clean Energy Fund in the face of strong oil. I said I wasn't abandoning my recent enthusiasm for the group just yet, but thought a failure to rally when oil is popping seemed to offer at least a small warning sign. With this week's strong bounce back, my concerns are mitigated. I think this offers a good lesson for this column. While short-term performance is something to watch, it shouldn't be the sole focus. A short-term view can give you an early warning that trends are changing but it does so with a high rate of noise.

Those interested in the PowerShares WilderHill Clean Energy Fund (PBW) can find more thoughts on the group in this post from my blog - Alternative Energy Stocks Hitting Highs - FuelCell Energy, JA Solar Holdings, and SunPower Corp.

Index performance this week: (click to enlarge)

Index performance year to date: (click to enlarge)