Wall Street has been witnessing increasing volatility since the beginning of the month. In fact, after seeing losses for three straight days, the market finally saw some upside as the Dow Jones Industrial Average was up 1.3% on May 13. The S&P 500 and the Nasdaq Composite were also up 1.2% and 0.7%, respectively, on the same day.
The initial weakness in the market was largely due to investors exiting major tech players and growth picks amid intensifying fears of increasing inflation and rising interest rates, per a CNBC article.
Spooking investors more, the latest data highlighted inflation levels rising at the fastest speed since 2008 in April. Notably, the Consumer Price Index rose 4.2% year over year in comparison with the Dow Jones estimate of a 3.6% rise, per a CNBC article. The five-year breakeven inflation rate — which measures expectations of inflation five years out — reached its
highest since April 2011 on May 10 while the 10-year breakeven inflation rate — a measure of expectations of inflation in 10 years’ time — rose to its highest since March 2013.
Investors are worried that rising inflation may hurt corporate margins and profits. They are also fearing that the consistent rise in inflation may put pressure on the Federal Reserve to tighten monetary policy, according to a CNBC article.
However, investors showed optimism despite a disappointing April jobs report. According to the Labor Department, nonfarm payrolls rose only 266,000 last month. The metric lags the Dow Jones estimate of 1 million, per a CNBC article. It also missed the downwardly revised figure of a rise to 770,000 in March from the previously stated 916,000. Moving on, the U.S. unemployment rate came in at 6.1% during April, in comparison with the Dow Jones estimate of 5.8%, per the same CNBC article.
The U.S. economy is appearing to be on the path of recovery from the pandemic-led slowdown. Markedly, accelerated vaccine distribution, strong fiscal stimulus support and the reopening of non-essential businesses are expected to expedite the economic recovery pace. Notably, the central bank has raised its economic growth outlook considering the vaccine and stimulus optimism and even expects higher inflation this year.
Strengthening the optimism, the United States administered around 200 million doses of vaccines under 100 days of Biden administration, per a CNN report. According to the U.S. Centers for Disease Control and Prevention (CDC), more than half of American adults received at least one vaccine dose, per a Reuters article. The country is now also witnessing a decline in daily new coronavirus infection cases.
Meanwhile, commenting on the current market conditions, George Ball, Sanders Morris Harris CEO told Yahoo Finance, "I think the big problem for investors right now is the Fed isn't going to change its course any time soon. But a lot of people who do have inflation fears longer-term are going to look for a shift in monetary policy that won't take place. And so while people wait and wait and wait, those fears will become greater. And I think ultimately they tug prices down, although not yet. We of the investing class like to see prices going higher, and there is momentum still in the market that is still on the bull side, at least temporarily, than on the downside."
Low-Volatility ETFs to the Rescue
Low-volatility products could be intriguing choices for those who want to continue investing in equities in the present turbulent market conditions. Consider the following interesting options:
iShares MSCI USA Min Vol Factor ETF ( USMV Quick Quote USMV - Free Report)
This fund offers exposure to 185 U.S. stocks with lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. With AUM of $29.07 billion, the product charges 0.15% in expense ratio (read:
ETF Asset Report of April). Invesco S&P 500 Low Volatility ETF ( SPLV Quick Quote SPLV - Free Report)
This ETF provides exposure to stocks with the lowest realized volatility over the past 12 months. The fund is based on the S&P 500 Low Volatility Index and holds 102 securities in its basket. It has AUM of $8.19 billion and charges an expense ratio of 25 basis points (bps), as stated in the prospectus (read:
ETF Strategies to Combat Aggravating Coronavirus Pandemic). iShares MSCI EAFE Min Vol Factor ETF ( EFAV Quick Quote EFAV - Free Report)
EFAV looks to replicate the performance of international equity securities that have lower risk. The fund tracks the MSCI EAFE Minimum Volatility (USD) Index and holds 255 securities. It accumulated $9.15 billion in its asset base. EFAV charges 20 bps in annual fees.
iShares MSCI Global Min Vol Factor ETF ( ACWV Quick Quote ACWV - Free Report)
The fund provides exposure to global stocks with potentially less risk. The fund tracks the MSCI All Country World Minimum Volatility Index and holds 378 securities. It has AUM of $5.29 billion and charges 20 bps in annual fees.
Invesco S&P 500 High Dividend Low Volatility ETF ( SPHD Quick Quote SPHD - Free Report)
The fund seeks investment results that generally correspond (before fees and expenses) to the price and yield of the S&P 500 Low Volatility High Dividend Index. It holds 51 securities. The fund has AUM of $3.19 billion and charges 30 bps in annual fees (read:
Citi Foresees a 10% Stock Pullback Likely: ETFs to Save You). Want key ETF info delivered straight to your inbox?
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