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Top ETF Stories of Q3

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The third quarter was quite a volatile one. Stocks in the United States and Europe had their biggest monthly increase since November 2020 in July but started falling from late August on renewed rising rate worries and recessionary fears. September too lived up to its ill-repute. Overall, the S&P 500, the Dow Jones and the Nasdaq Composite lost about 6.5%, 7.3% and 6%, respectively in the past three months (as of Sep 27, 2022). The Russell 2000 too retreated about 17% in the same period. 

Against this backdrop, below, we highlight a few top ETF stories of the third quarter.

Fed Rate Hike Momentum to Continue; Greenback Gains Strength

The Fed Chair Jerome Powell raised interest rates by another 75 bps in late September. This marked the third consecutive rate hike of 0.75% and pushed the benchmark interest rate to 3.0-3.25%, the highest level since 2008. The central bank also signaled that additional large rate hikes were likely at the upcoming meetings as it combats the near a 40-year high inflation.

Fed officials now expect the federal funds rate at a range of 4.25% to 4.5%, a full percentage point above the 3.25% to 3.5% projected in June to end 2022. This means that the central bank could approve another three-quarter point hike at its November meeting and then a half-point rate hike in December. Economists warned that the rapid tightening would hurt the labor and housing spaces, thereby pushing the economy into recession and impacting the stock market.

Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) gained about 10% in the past three months on a super-hawkish Fed. Plus, Simplify Interest Rate Hedge ETF (PFIX) and Advocate Rising Rate Hedge ETF added about 10.7% and 13.6%, respectively in Q3.

Signing of ‘Inflation Reduction Act’

U.S. President Joe Biden has also signed a $740 billion climate change, healthcare and tax “Inflation Reduction Act.” The coming Democratic message will likely focus on the aspects of the bill that could improve Americans' lives immediately — including tax credits for electric vehicles and energy-efficient home improvements and key health care provisions.

The bill benefits clean energy and electric vehicles sectors meaningfully. Energy Secretary Jennifer Granholm pointed to a new 30% tax credit for installing energy-efficient windows, heat pumps, or newer models of appliances. A second tax credit encourages people to install solar panels on their roofs, per CNN, as quoted on Yahoo Finance. iShares Global Clean Energy ETF (ICLN - Free Report) , Invesco Solar ETF (TAN - Free Report) and Global X Autonomous & Electric Vehicles ETF (DRIV) are some of the beneficiaries.

Utility ETFs Scaled Highs in August Only to Slump in September

Since volatility and uncertainty persisted, the utilities sector is making the most of it. No wonder, most utility stocks and ETFs are hitting fresh highs. This is always a safe sector and flew high in August. However, the rally in utilities did not last long as rates started rising in September. Utilities Select Sector SPDR (XLU - Free Report) is up 1.5% in the past three months (as of Sep 23, 2022).

Agriculture Wins

Several agricultural products won in Q3. Among the lot, iPath Series B Bloomberg Coffee Subindex Total Return ETN (JO - Free Report) (up 2.8%) and Teucrium Corn ETF (CORN - Free Report) (down 0.6%) deserve special mention. Dry weather in the key producing region of Brazil led to gains in coffee prices. This has hurt the development of coffee buds. Severe drought and lower crop condition ratings have boosted corn prices.

However, U.S. corn futures prices backtracked from three-month highs enjoyed earlier this month due to a bearish demand outlook and renewed grain shipping from ports in the Black Sea following an export deal between Russia and Ukraine.

Uranium Miners Draw Attention

Sprott Uranium Miners ETF (URNM - Free Report) gained about 5.8% in the past three months. Share prices of uranium miners jumped as Japan's prime minister Fumio Kishida said the nation resumed idled nuclear plants and will focus on developing next-generation reactors to prepare for the soaring energy costs amid the Ukraine crisis.

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