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The annual inflation rate in the United States slowed for five months in a row to 7.1% in November 2022, the lowest since December last year, and below forecasts of 7.3%. It followed a reading of 7.7% in October. Compared to the previous month, the CPI nudged up only 0.1%, the smallest rise in three months, and lower than forecasts of 0.3%.
Energy cost rose 13.1% in November, below 17.6% in October, due to gasoline (10.1% versus 17.5%), fuel oil (65.7% versus 68.5%) and electricity (13.7% versus 14.1%). Food price inflation also cooled down (10.6% versus 10.9%) while prices of used cars and trucks dropped by 3.3% (after a 2% uptick in October).
Against this backdrop, below, we highlight a few ETF areas that could gain/lose amid cooling U.S. inflation data.
Winning ETF Areas
Stocks
U.S. stocks surged on softer U.S. inflation data as lower inflation data means a less hawkish Fed and a moderation in the central bank’s rate hike momentum. Stocks have suffered a lot in 2022 due to the Fed’s super-hawkish stance to tame sky-high inflation. Any cues of cooling inflation are thus great for stocks as it hints at lower rates. Since growth stocks perform better in a low-rate environment than value stocks, SPDR Portfolio S&P 500 Growth ETF (SPYG - Free Report) should win.
Gold
Gold normally underperforms in a rising rate environment as it is a non-interest-bearing asset. With the Fed likely to turn less hawkish in 2023 and opt for slower rate hike momentum, a gold rally is possible from here.
The U.S. dollar, too, is likely to fall. The U.S. dollar has lost 2% past month though it is still up 10% this year. Chances of smaller Fed rate hikes in the coming days cut the strength in the greenback. Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) is a likely underperformer.
This is a positive for gold as the metal is priced in U.S. dollar. The metal shares an inverse relation with the greenback. SPDR Gold Shares (GLD - Free Report) should thus be closely watched for gains.
Bitcoin
Bitcoin – another risky investing area – underperformed a lot in 2022. The cryptocurrency has gone into a tailspin this year, along with the broader market crash. Notably, bitcoin hit an all-time high of $67.5K in November 2021. However, news of the persistent decline in U.S. inflation data should favor bitcoin prices. The bitcoin marched toward the $18K-mark just after the release of November inflation data.
Banks
The yield curve is likely to steepen ahead as a potential risk-on rally should bolster the long-term U.S. treasury yields ahead while keeping the short-term yields lower (on cues of a less aggressive Fed). This scenario is great for banks and financial companies as this widens the net interest margin. SPDR S&P Regional Banking ETF (KRE - Free Report) thus appears to be gaining on the latest inflation data.
Real Estate
The cost of shelter increased faster in November, having gained 7.1% versus 6.9% gains noticed in October. Vanguard Real Estate Index Fund (VNQ - Free Report) should thus gain.
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ETFs to Gain on Cooling U.S. Inflation Data
The annual inflation rate in the United States slowed for five months in a row to 7.1% in November 2022, the lowest since December last year, and below forecasts of 7.3%. It followed a reading of 7.7% in October. Compared to the previous month, the CPI nudged up only 0.1%, the smallest rise in three months, and lower than forecasts of 0.3%.
Energy cost rose 13.1% in November, below 17.6% in October, due to gasoline (10.1% versus 17.5%), fuel oil (65.7% versus 68.5%) and electricity (13.7% versus 14.1%). Food price inflation also cooled down (10.6% versus 10.9%) while prices of used cars and trucks dropped by 3.3% (after a 2% uptick in October).
Against this backdrop, below, we highlight a few ETF areas that could gain/lose amid cooling U.S. inflation data.
Winning ETF Areas
Stocks
U.S. stocks surged on softer U.S. inflation data as lower inflation data means a less hawkish Fed and a moderation in the central bank’s rate hike momentum. Stocks have suffered a lot in 2022 due to the Fed’s super-hawkish stance to tame sky-high inflation. Any cues of cooling inflation are thus great for stocks as it hints at lower rates. Since growth stocks perform better in a low-rate environment than value stocks, SPDR Portfolio S&P 500 Growth ETF (SPYG - Free Report) should win.
Gold
Gold normally underperforms in a rising rate environment as it is a non-interest-bearing asset. With the Fed likely to turn less hawkish in 2023 and opt for slower rate hike momentum, a gold rally is possible from here.
The U.S. dollar, too, is likely to fall. The U.S. dollar has lost 2% past month though it is still up 10% this year. Chances of smaller Fed rate hikes in the coming days cut the strength in the greenback. Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) is a likely underperformer.
This is a positive for gold as the metal is priced in U.S. dollar. The metal shares an inverse relation with the greenback. SPDR Gold Shares (GLD - Free Report) should thus be closely watched for gains.
Bitcoin
Bitcoin – another risky investing area – underperformed a lot in 2022. The cryptocurrency has gone into a tailspin this year, along with the broader market crash. Notably, bitcoin hit an all-time high of $67.5K in November 2021. However, news of the persistent decline in U.S. inflation data should favor bitcoin prices. The bitcoin marched toward the $18K-mark just after the release of November inflation data.
Banks
The yield curve is likely to steepen ahead as a potential risk-on rally should bolster the long-term U.S. treasury yields ahead while keeping the short-term yields lower (on cues of a less aggressive Fed). This scenario is great for banks and financial companies as this widens the net interest margin. SPDR S&P Regional Banking ETF (KRE - Free Report) thus appears to be gaining on the latest inflation data.
Real Estate
The cost of shelter increased faster in November, having gained 7.1% versus 6.9% gains noticed in October. Vanguard Real Estate Index Fund (VNQ - Free Report) should thus gain.