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Investors have taken a sigh of relief with the new Federal Open Market Committee’s (FOMC) minutes from the Jun 15-16 meeting. Accordingly, the S&P 500 index rose 0.34% to an all-time high of 4,358.13 on Jul 7, after snapping its seven-day winning streak the previous day. Going by the latest FOMC minutes, the central bank will wait patiently to attain the “substantial further progress” benchmark before tightening the policy, as stated in a CNBC article.
Moving on, the summary from the meeting maintained the same stance on inflation as Federal Reserve chairman Jerome Powell had discussed. According to a CNBC article, Powell remained bullish on the economic recovery achieved so far from the pandemic-led slump. He also maintained that high inflation levels were temporary and will return to 2% over the long term, per the same article.
Commenting on the Fed’s minutes, Paul Ashworth, chief U.S. economist at Capital Economics, had said that “The minutes of the Fed’s mid-June FOMC meeting were not as hawkish as we suspected. In particular, there seems to be only limited support for beginning to taper the monthly asset purchases anytime soon,” per a CNBC article.
It is worth noting here that investors were very concerned about the Federal Reserve beginning to taper their bond purchases amounting to about $80 billion of Treasurys and $40 billion of mortgage-backed securities, per a CNBC report. However, the minutes have made it very clear that the Fed has decided to remain patient and to inform in advance about their plans to reduce the pace of purchases.
ETF Strategies to Follow
Here we discuss certain ETF strategies to help investors gain from optimism surrounding the Fed’s dovish stance amid recovering U.S. economy from the pandemic-led slump:
Try the ETFs to Gain From Reopening Economy
The coronavirus vaccine rollout is gradually containing the spread of the outbreak across the globe. Accordingly, global demand and the economic growth levels are on the mend from the pandemic-led slump. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for the cyclical sectors. Moreover, a dovish Fed is providing the much-needed support to the cyclical sector to carry on with economic activities as the global economies are reopening.
Stocks within the cyclical sectors like industrial, financial, energy and consumer discretionary mostly move in tandem with the prevalent economic conditions and when growth returns to normalcy, these sectors will automatically perform well.
Let’s look at how some popular ETFs belonging to the cyclical sector will benefit from the current scenario. These are, namely, The Industrial Select Sector SPDR Fund (XLI - Free Report) , Energy Select Sector SPDR (XLE - Free Report) , Fidelity MSCI Materials Index ETF (FMAT - Free Report) , Invesco KBW Bank ETF (KBWB) and Fidelity MSCI Consumer Discretionary Index ETF (FDIS) (read: What Does US Economic Recovery Mean for Industrial ETFs' 2H21?).
Play the Momentum ETFs
While the broader stock market is expected to gain on optimism surrounding the rebounding U.S. economy and accelerated distribution of coronavirus vaccine, momentum investing will likely take centerstage as investors seek greater returns in the short term. Momentum investing looks to fetch profits from hot stocks that have shown an uptrend over the past few weeks or months. Investors can consider iShares Edge MSCI USA Momentum Factor ETF (MTUM - Free Report) , Invesco DWA Momentum ETF (PDP - Free Report) , Invesco S&P MidCap Momentum ETF (XMMO - Free Report) , VictoryShares USAA MSCI USA Value Momentum ETF (ULVM) and SPDR Russell 1000 Momentum Focus ETF (ONEO) (read: Momentum ETFs & Stocks to Buy Now).
Growth ETFs to Ride the Optimism
The value trade has powered the stock bulls for most of this year. Investors have rotated back into growth-oriented areas of the market in recent weeks on optimism surrounding the economic recovery. In particular, big tech companies have rebounded strongly after being hit by inflation fears and lofty valuation concerns.
Given the bullishness, investors seeking to capitalize on the strong trends should consider growth ETFs. However, it is worth noting that these funds offer exposure to stocks with growth characteristics that have comparatively higher P/B, P/S and P/E ratios and exhibit a higher degree of volatility when compared to value stocks. Here, we highlight a few growth ETFs like Vanguard Growth ETF (VUG - Free Report) , Schwab U.S. Large-Cap Growth ETF (SCHG - Free Report) , iShares Core S&P U.S. Growth ETF (IUSG - Free Report) , SPDR S&P 500 Growth ETF (SPYG) and Vanguard Mega Cap Growth ETF (MGK) (read: Large-Cap Growth ETF (IUSG - Free Report) Hits New 52-Week High).
Small-Cap ETFs to Watch Out For
Small-cap stocks, as indicated by the Russell 2000 Index, have been outperforming the broader market and hitting new all-time highs in the recent past. In fact, the Russell 2000 index climbed 0.6% in June witnessing its ninth consecutive positive month. The index also saw its longest monthly win since 1995. This upside is being largely led by small-cap companies that are closely tied to the U.S. economy and are thus well-positioned to outperform when the economy improves. The latest release of economic data is also indicating toward an improving economy. Therefore, investors can consider Schwab U.S. Small-Cap ETF (SCHA - Free Report) , SPDR S&P 600 Small Cap ETF , Vanguard S&P Small-Cap 600 ETF (VIOO - Free Report) and John Hancock Multifactor Small Cap ETF (JHSC) (read: A Quick Guide to the 25 Cheapest ETFs).
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ETF Strategies to Cheer the Dovish Fed Minutes
Investors have taken a sigh of relief with the new Federal Open Market Committee’s (FOMC) minutes from the Jun 15-16 meeting. Accordingly, the S&P 500 index rose 0.34% to an all-time high of 4,358.13 on Jul 7, after snapping its seven-day winning streak the previous day. Going by the latest FOMC minutes, the central bank will wait patiently to attain the “substantial further progress” benchmark before tightening the policy, as stated in a CNBC article.
Moving on, the summary from the meeting maintained the same stance on inflation as Federal Reserve chairman Jerome Powell had discussed. According to a CNBC article, Powell remained bullish on the economic recovery achieved so far from the pandemic-led slump. He also maintained that high inflation levels were temporary and will return to 2% over the long term, per the same article.
Commenting on the Fed’s minutes, Paul Ashworth, chief U.S. economist at Capital Economics, had said that “The minutes of the Fed’s mid-June FOMC meeting were not as hawkish as we suspected. In particular, there seems to be only limited support for beginning to taper the monthly asset purchases anytime soon,” per a CNBC article.
It is worth noting here that investors were very concerned about the Federal Reserve beginning to taper their bond purchases amounting to about $80 billion of Treasurys and $40 billion of mortgage-backed securities, per a CNBC report. However, the minutes have made it very clear that the Fed has decided to remain patient and to inform in advance about their plans to reduce the pace of purchases.
ETF Strategies to Follow
Here we discuss certain ETF strategies to help investors gain from optimism surrounding the Fed’s dovish stance amid recovering U.S. economy from the pandemic-led slump:
Try the ETFs to Gain From Reopening Economy
The coronavirus vaccine rollout is gradually containing the spread of the outbreak across the globe. Accordingly, global demand and the economic growth levels are on the mend from the pandemic-led slump. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for the cyclical sectors. Moreover, a dovish Fed is providing the much-needed support to the cyclical sector to carry on with economic activities as the global economies are reopening.
Stocks within the cyclical sectors like industrial, financial, energy and consumer discretionary mostly move in tandem with the prevalent economic conditions and when growth returns to normalcy, these sectors will automatically perform well.
Let’s look at how some popular ETFs belonging to the cyclical sector will benefit from the current scenario. These are, namely, The Industrial Select Sector SPDR Fund (XLI - Free Report) , Energy Select Sector SPDR (XLE - Free Report) , Fidelity MSCI Materials Index ETF (FMAT - Free Report) , Invesco KBW Bank ETF (KBWB) and Fidelity MSCI Consumer Discretionary Index ETF (FDIS) (read: What Does US Economic Recovery Mean for Industrial ETFs' 2H21?).
Play the Momentum ETFs
While the broader stock market is expected to gain on optimism surrounding the rebounding U.S. economy and accelerated distribution of coronavirus vaccine, momentum investing will likely take centerstage as investors seek greater returns in the short term. Momentum investing looks to fetch profits from hot stocks that have shown an uptrend over the past few weeks or months. Investors can consider iShares Edge MSCI USA Momentum Factor ETF (MTUM - Free Report) , Invesco DWA Momentum ETF (PDP - Free Report) , Invesco S&P MidCap Momentum ETF (XMMO - Free Report) , VictoryShares USAA MSCI USA Value Momentum ETF (ULVM) and SPDR Russell 1000 Momentum Focus ETF (ONEO) (read: Momentum ETFs & Stocks to Buy Now).
Growth ETFs to Ride the Optimism
The value trade has powered the stock bulls for most of this year. Investors have rotated back into growth-oriented areas of the market in recent weeks on optimism surrounding the economic recovery. In particular, big tech companies have rebounded strongly after being hit by inflation fears and lofty valuation concerns.
Given the bullishness, investors seeking to capitalize on the strong trends should consider growth ETFs. However, it is worth noting that these funds offer exposure to stocks with growth characteristics that have comparatively higher P/B, P/S and P/E ratios and exhibit a higher degree of volatility when compared to value stocks. Here, we highlight a few growth ETFs like Vanguard Growth ETF (VUG - Free Report) , Schwab U.S. Large-Cap Growth ETF (SCHG - Free Report) , iShares Core S&P U.S. Growth ETF (IUSG - Free Report) , SPDR S&P 500 Growth ETF (SPYG) and Vanguard Mega Cap Growth ETF (MGK) (read: Large-Cap Growth ETF (IUSG - Free Report) Hits New 52-Week High).
Small-Cap ETFs to Watch Out For
Small-cap stocks, as indicated by the Russell 2000 Index, have been outperforming the broader market and hitting new all-time highs in the recent past. In fact, the Russell 2000 index climbed 0.6% in June witnessing its ninth consecutive positive month. The index also saw its longest monthly win since 1995. This upside is being largely led by small-cap companies that are closely tied to the U.S. economy and are thus well-positioned to outperform when the economy improves. The latest release of economic data is also indicating toward an improving economy. Therefore, investors can consider Schwab U.S. Small-Cap ETF (SCHA - Free Report) , SPDR S&P 600 Small Cap ETF , Vanguard S&P Small-Cap 600 ETF (VIOO - Free Report) and John Hancock Multifactor Small Cap ETF (JHSC) (read: A Quick Guide to the 25 Cheapest ETFs).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>