Fed's Move: What It Means For Investors and Markets

The Fed's surprise decision to buy billions of dollars of government debt rippled across financial markets on Thursday—with gold, oil and other commodities getting a big boost from a weaker dollar while stocks drifted lower amid uncertainty about the long-term impact.

Kathy Willens / AP

Treasurys also benefited, as did mortgage rates, though there were questions over how long that phenomenon would continue.

The overall view of the the Fed's plan to buy up to $300 billion of long-term government bonds and $750 billion in additional mortgage-backed securities: While it may help ease the credit crisis for now, the longer-term impact is giving some investors pause.

"It's short-term positive," said Peter Tanous, president and director of Lynx Investment Advisory in Washington, D.C. "If you look a little bit down the road it potentially exacerbates the inflationary pressures we're going to be having somewhere in the future, because essentially the Fed is printing money and putting a lot of money out there to buy the paper that it's going to buy."

Here's a rundown of how the Fed move is affecting different markets.

Stocks

Major indexes got a modest boost Wednesday but then meandered Thursday before ceding some of their recent gains.

Bank of America and others in the sector retraced, while home builders, particularly Hovnanian , were mostly positive.

The upshot seemed to be a reluctance from portfolio managers to make big changes at least in terms of their equity allocations.

"One can be a little more optimistic about stocks," Tanous said. "At least they stopped freefalling—that's a good sign. It does appear that we're getting a handle on some of these problems."

Yet Tanous said that perhaps the best investment anyone can make now is to go out and buy a house. The reason: mortgage rates may take a quick drop, but rates overall could head higher in the coming months.

"If (the Fed move) doesn't point to higher interest rates (eventually), I don't know what does," he said. "We are going to be out borrowing a lot of money in the world markets and I don't think anybody—when they see that historic volume—believes that can be done at lower interest rates."

Interest Rates

Indeed, one of the most pronounced moves in the financial markets came from mortgage rates, which fell to a jaw-dropping 4.79 percent for a 30-year fixed, according to the Zillow Mortgage Rate Monitor.

In addition to its move to buy $300 billion in long-term Treasurys, the Fed said it would purchase an additional $750 billion of agency mortgage-backed securities, bringing total purchases to up to $1.25 trillion this year, as well as double its potential purchases of agency debt securities to up to $200 billion.

Aside from the question of what the long-term prognosis is for mortgage rates—most expect the near-term trend to be lower—there were questions about whether another drop would do anything to spur lending and home purchases.

"The financial system has been badly mauled and one wonders what desire banks have to return to the outright amount and type of lending practices that they did just a few years ago," Andrew Wilkinson, senior market analyst for Interactive Brokers, said in a research note. "Without a shadow of a doubt housing values have further to fall and that will weigh on spending and construction activity going forward."

Gold

Among the most dramatic move off the Fed's decision came from gold, which picked up close to $60 an ounce at one point before easing.

Gold generally moves in the opposite direction from the dollar, which saw its biggest one-day tumble since 1985 immediately after the Fed's decision and added to its losses Thursday. Gold's higher was unexpected to some analysts who saw the metal's price falling before the Fed move.

"We had argued that gold should retract towards the $850 area on physical dishoarding, but now the goalposts have been moved courtesy of the Fed. It is considerably less clear whether such a pullback is likely," JPMorgan said in a research note. "It is very clear that investors are jumping back into gold and this flow, which has until recently been overwhelmed by dishoarding, may now get the upper hand."

The most popular exchange-traded fund for gold, the SPDR Gold Trust , was gaining Thursday as well.

But gold was hardly alone in a surge for metals.

Copper jumped more than 6 percent, while nickel, lead and zinc also posted sharp moves to the upside.

CONTINUED : Dollar Down, But Oil Gushes

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