In the market, for every buyer, there is a seller and for every winner, a loser. In September, the Federal Reserve announced a third round of asset purchases, a governmental policy called quantitative easing (QE), is being dubbed QE3 by the market. The first two rounds of quantitative easing were big but QE3 is bigger.

Discount Brokers Comparison: Your one-stop shop for finding the perfect broker for your investments.

This time, the Fed committed to buying $40 billion worth of mortgage-backed securities every month. What shocked investors was the pledge to continue to do so until the labor market noticeably improved. Regardless of how long it takes, the government will infuse massive amounts of money into United States markets in order to create jobs and get the economy back on track.

However, the market always has winners and losers. QE3 will help some businesses while others anxiously wait for the program to end. It is too early to gauge the success of QE3 but there are plenty of predictions.

The Winners
Precious Metals
Since the announcement of QE1 in November of 2008, SPDR Gold Shares (ARCA:GLD) are up more than 120% compared with the S&P 500, which is up just over 50% in the same period. Although QE efforts should have had an effect on inflation, QE1 and QE2 had very little. Investors are not so sure about QE3 and that may give metals, like gold, another move to the upside as investors use it as an inflation hedge.

Risk-on Equities
Goldman Sachs (NYSE:GS) lists companies like Lennar (NYSE:LEN), Home Depot (NYSE:HD) and Monsanto (NYSE:MON) as outperformers during that time. Many other equities saw QE-related boosts but Goldman Sachs notes that most were growth stocks with cheap valuations.

CNBC reports that since the launch of QE3, loan-originating banks have increased their margins. Although banks were lending to customers at 3.4%, as of October 1, they were paying 1.85% in interest, down from 2.35% the day before the Fed announced QE3.

The Losers
The Bond Market
Very little in the bond market is simple but conventional wisdom goes like this: when money floods the market, the market rises - making investors more willing to invest in more risky assets. Often, those assets are equities - making bonds fall out of favor. According to Barons, bonds fell out of favor during QE1 and QE2.

The Housing Market
reports that some Fed officials are concerned that the flood of liquidity reaching the banks is not finding its way to borrowers. It seems, according to Reuters, that while interest rates have fallen since QE1, qualifying for a loan is still no easy task. That, along with increased loan origination costs, has resulted in only about 40% of new liquidity reaching the market. If the money is not being handed out or applicants do not qualify, the housing market does not receive the boost that Fed policy makers had hoped for.

For consumers refinancing their loans and for businesses that need to borrow, a lower interest rate is good news. For fixed-income investors or those with savings accounts or CDs, the announcement of QE3 is more assurance that finding reasonable yields without taking on more risk will not be possible in the near future. Although yields in corporate bonds and dividend paying stocks like AstraZeneca (NYSE:AZN) is around 6%, the risk that comes with individual equities may be inappropriate.

Savers have the choice of leaving their money in products that do not beat the rate of inflation or employing other strategies that they may not understand, and that could result in significant capital loss if the market was to enter a recession again before interest rates rise.

The Bottom Line
The market is a mix of winners and losers. When one side profits, the other side suffers. QE3 could make winners out of growth companies while leaving conservative investors with the choice of ratcheting up risk or waiting out the low interest rate environment. Since this round of QE looks to be more massive than the two before it, investors and consumers will have to wait and see if it has the desired effect of raising both employment and the sense that the economy is healing.

At the time of writing, Tim Parker owned shares of HD since 2011.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares JPMorgan USD Emerg Markets Bond

    Learn about the iShares JPMorgan USD Emerging Markets Bond fund, which invests in bonds of sovereign and quasi-sovereign entities from emerging markets.
  2. Mutual Funds & ETFs

    ETF Analysis: SPDR Dow Jones International RelEst

    Learn how the SPDR Dow Jones International Real Estate exchange-traded fund (ETF) is managed and for whom the ETF is most appropriate.
  3. Active Trading Fundamentals

    How Hedge Funds Front-Run Index Funds to Profit

    Understand what front running is, and learn how hedge funds use this investing strategy to profit from the anticipated stock buys of index funds.
  4. Mutual Funds & ETFs

    ETF Analysis: Schwab US Large-Cap

    Discover how the Schwab U.S. Large-Cap exchange-traded fund is managed, the index it tracks and the investors for which it is most appropriate.
  5. Mutual Funds & ETFs

    ETN Analysis: Rogers Intl Commodity Energy Total Return

    Learn more about the Rogers International Commodity Total Return, which is an exchange-traded note that tracks a broad index of commodity futures.
  6. Forex Education

    China's Devaluation of the Yuan

    Just over one week ago the People’s Bank of China (PBOC) surprised markets with three consecutive devaluations of the yuan, knocking over 3% off its value.
  7. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  8. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  10. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Lion economies

    A nickname given to Africa's growing economies.
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!