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"Worst of U.S. Inflation Over"? ETF Areas Likely to Gain
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The Consumer Price Index (CPI) showed prices rose 0% over last month and 3.2% over the prior year in October, a deceleration from September's 0.4% monthly increase and 3.7% annual gain in prices. Core inflation marked its slowest pace in over two years.
Economists' expectations fell short of the actual data, as they had predicted a 0.1% month-over-month increase and a 3.3% year-over-year increase in prices. Core prices were also anticipated to rise by 0.3% over the prior month and 4.1% over the previous year.
Not only this, retailer Home Depot (HD - Free Report) management said “the worst of the inflationary environment is behind us,” as quoted on CNBC. If this is not enough, Walmart (WMT - Free Report) CEO said that deflation could be coming this holiday season, quoted on CNBC.
Hence, Wall Street may record a short-term rally as wagers on rate hikes will cool down due to slowing of inflation. And with inflation showing signs of cooling, it's crucial to identify growth sectors that are poised to outperform in the upcoming period (read: Slowest Inflation Since Sep'21 to Boost Growth ETFs in Near Term).
The technology sector, which is high growth in nature, is expected to thrive, especially with the ongoing artificial intelligence (AI) boom. This includes companies specializing in AI, robotics, and renewable energy technologies. As the world continues to digitize, these sectors offer significant growth potential.
Biotechnology is also anticipated to be major growth areas. The ongoing advancement in personalized medicine, gene therapy, and telehealth services, driven by an aging global population and the need for more efficient healthcare solutions, suggests strong potential for these industries.
This sector benefits as lower rates often result in increased purchasing power and higher consumer spending on non-essential items like luxury goods, travel, and entertainment. This is especially true given we are about to enter the all-important holiday season, which normally sees increased outlays on discretionary goods and services. Oil prices too slipped lately, which is another tailwind for the sector.
Banks often perform better when the yield curve steepens. If the Fed stays put from here resulting in lower short-term rates and long-term rates go up on increased activities in the economy, banks would fare better as this would result in higher net interest margin. Plus, certain financial services like mortgage lending can see increased activity due to the attractiveness of lower borrowing costs.
Emerging markets present significant opportunities. As the Fed has chances of staying put/cutting rates ahead, the U.S. treasury yield may fall and the greenback may lose some strength. As a result, emerging markets investing may witness gains. These markets, generally offer high yields. If yields fall in the United States, investors may dump money into emerging markets in quest of higher current income. The fund DVYE yields 9.40% annually.
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"Worst of U.S. Inflation Over"? ETF Areas Likely to Gain
The Consumer Price Index (CPI) showed prices rose 0% over last month and 3.2% over the prior year in October, a deceleration from September's 0.4% monthly increase and 3.7% annual gain in prices. Core inflation marked its slowest pace in over two years.
Economists' expectations fell short of the actual data, as they had predicted a 0.1% month-over-month increase and a 3.3% year-over-year increase in prices. Core prices were also anticipated to rise by 0.3% over the prior month and 4.1% over the previous year.
Not only this, retailer Home Depot (HD - Free Report) management said “the worst of the inflationary environment is behind us,” as quoted on CNBC. If this is not enough, Walmart (WMT - Free Report) CEO said that deflation could be coming this holiday season, quoted on CNBC.
Hence, Wall Street may record a short-term rally as wagers on rate hikes will cool down due to slowing of inflation. And with inflation showing signs of cooling, it's crucial to identify growth sectors that are poised to outperform in the upcoming period (read: Slowest Inflation Since Sep'21 to Boost Growth ETFs in Near Term).
Let’s delve a little deeper.
ETF Areas Likely to Win
Technology – Technology Select Sector SPDR ETF (XLK - Free Report)
The technology sector, which is high growth in nature, is expected to thrive, especially with the ongoing artificial intelligence (AI) boom. This includes companies specializing in AI, robotics, and renewable energy technologies. As the world continues to digitize, these sectors offer significant growth potential.
Biotechnology – iShares Biotechnology ETF (IBB - Free Report)
Biotechnology is also anticipated to be major growth areas. The ongoing advancement in personalized medicine, gene therapy, and telehealth services, driven by an aging global population and the need for more efficient healthcare solutions, suggests strong potential for these industries.
Consumer Discretionary – Consumer Discretionary Select Sector SPDR ETF (XLY - Free Report)
This sector benefits as lower rates often result in increased purchasing power and higher consumer spending on non-essential items like luxury goods, travel, and entertainment. This is especially true given we are about to enter the all-important holiday season, which normally sees increased outlays on discretionary goods and services. Oil prices too slipped lately, which is another tailwind for the sector.
Financials – – Financial Select Sector SPDR ETF (XLF - Free Report)
Banks often perform better when the yield curve steepens. If the Fed stays put from here resulting in lower short-term rates and long-term rates go up on increased activities in the economy, banks would fare better as this would result in higher net interest margin. Plus, certain financial services like mortgage lending can see increased activity due to the attractiveness of lower borrowing costs.
Emerging Markets – iShares Emerging Markets Dividend ETF (DVYE - Free Report)
Emerging markets present significant opportunities. As the Fed has chances of staying put/cutting rates ahead, the U.S. treasury yield may fall and the greenback may lose some strength. As a result, emerging markets investing may witness gains. These markets, generally offer high yields. If yields fall in the United States, investors may dump money into emerging markets in quest of higher current income. The fund DVYE yields 9.40% annually.