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Is Fed Rate Hike Worry Exaggerated? Top-Ranked ETFs to Play
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After a great start to 2023, global stock markets and Wall Street again started to waver after the release of upbeat U.S. economic data points. These triggered fears of more steeper interest rate hikes as the inflation is still hot.
U.S. employers recruited twice as many people in January as the previous month and wages grew. Retail sales data came in at upbeat. Homebuilders’ confidence too remains solid. While it is good for the economy, the data point dampened hopes of those who believed that the Federal Reserve might not hike rates few more times this year.
The current target rate is 450-475 bps. U.S. policymakers recently hinted that the central bank may return to aggressive stance on monetary policy. This suggests that Fed may opt for 50 basis points in next policy meeting.
Per CME Fed Watch Tool, there is 76% probability of a 25-bp rate hike in the next meeting (scheduled for Mar 22). There are 74.9% chances of rates being 500-525 bps in the meeting scheduled for early May.
Inflation Rate in the United States is expected to be 6.00% by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. Federal Reserve Chairman Jerome Powell recently said that disinflation “has begun” but is going to take time.
Though many may fear about the rate hike momentum in the coming days, we believe the fear is exaggerated. Over the past month, retail investors injected an average of $1.51 billion each day into U.S. stocks, the highest amount ever recorded, according to data from research firm VandaTrack published Thursday, as quoted on Business Insider.
Against this backdrop, below we highlight a few ETFs that can be played right now.
Value stocks perform better in a rising rate environment which we have been witnessing currently. Moreover, during the peak of the pandemic, value stocks were hit hard. With economy gaining traction, now is the time for them to flourish on beaten-down valuation.
The underlying S&P 500 Enhanced Value Index tracks the performance of stocks in the S&P 500 Index that have the highest value score. Financials (37.71%), energy (14.86%) and communication services (10.05%) hold top three spots in the fund. The fund charges 13 bps in fees.
Consumer discretionary is a cyclical industry and often fares better in rising rate environment. Upbeat U.S. labor market despite steep Fed rate hikes in the past one-year position these stocks in a sweet spot now.
The underlying Consumer Discretionary Select Sector Index seeks to provide an effective representation of the consumer discretionary sector of the S&P 500 Index. Internet & Direct Marketing Retail (24.58%) and specialty retail (22.29%) take almost half of the fund.
SPDR Portfolio S&P 600 Small Cap ETF (SPSM - Free Report) –Zacks Rank #2
The latest job report has added to the strength to the economy. Several other data points too came in at upbeat. If the Fed continues to hike rate, the greenback should remain strong, which is a plus for the more domestically-focused small-cap stocks.
Financials (17.79%), Industrials (17.76%), Consumer Discretionary (13.74%), Information Technology (13.47%) and Health Care (10.65%) have a double-dight weights in the fund. The fund charges 5 bps in fees.
Industrial stocks historically yielded encouraging returns from December to May. Biden’s huge infrastructure plan is a positive for the space.
The underlying Industrial Select Sector Index includes companies from the following industries: industrial conglomerates; aerospace & defense; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors. The fund charges 10 bps in fees.
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Is Fed Rate Hike Worry Exaggerated? Top-Ranked ETFs to Play
After a great start to 2023, global stock markets and Wall Street again started to waver after the release of upbeat U.S. economic data points. These triggered fears of more steeper interest rate hikes as the inflation is still hot.
The U.S. Federal Reserve is believed to hike the benchmark rate above 5% and keep it there to tame too-high inflation in an economy where the labor market remains strong even after nearly a year of the most aggressive round of Fed rate hikes in 40 years.
U.S. employers recruited twice as many people in January as the previous month and wages grew. Retail sales data came in at upbeat. Homebuilders’ confidence too remains solid. While it is good for the economy, the data point dampened hopes of those who believed that the Federal Reserve might not hike rates few more times this year.
The current target rate is 450-475 bps. U.S. policymakers recently hinted that the central bank may return to aggressive stance on monetary policy. This suggests that Fed may opt for 50 basis points in next policy meeting.
Per CME Fed Watch Tool, there is 76% probability of a 25-bp rate hike in the next meeting (scheduled for Mar 22). There are 74.9% chances of rates being 500-525 bps in the meeting scheduled for early May.
Inflation Rate in the United States is expected to be 6.00% by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. Federal Reserve Chairman Jerome Powell recently said that disinflation “has begun” but is going to take time.
Though many may fear about the rate hike momentum in the coming days, we believe the fear is exaggerated. Over the past month, retail investors injected an average of $1.51 billion each day into U.S. stocks, the highest amount ever recorded, according to data from research firm VandaTrack published Thursday, as quoted on Business Insider.
Against this backdrop, below we highlight a few ETFs that can be played right now.
Invesco S&P 500 Enhanced Value ETF (SPVU - Free Report) – Zacks Rank #1 (Strong Buy)
Value stocks perform better in a rising rate environment which we have been witnessing currently. Moreover, during the peak of the pandemic, value stocks were hit hard. With economy gaining traction, now is the time for them to flourish on beaten-down valuation.
The underlying S&P 500 Enhanced Value Index tracks the performance of stocks in the S&P 500 Index that have the highest value score. Financials (37.71%), energy (14.86%) and communication services (10.05%) hold top three spots in the fund. The fund charges 13 bps in fees.
Consumer Discretionary Select Sector SPDR ETF (XLY - Free Report) – Zacks Rank #2 (Buy)
Consumer discretionary is a cyclical industry and often fares better in rising rate environment. Upbeat U.S. labor market despite steep Fed rate hikes in the past one-year position these stocks in a sweet spot now.
The underlying Consumer Discretionary Select Sector Index seeks to provide an effective representation of the consumer discretionary sector of the S&P 500 Index. Internet & Direct Marketing Retail (24.58%) and specialty retail (22.29%) take almost half of the fund.
SPDR Portfolio S&P 600 Small Cap ETF (SPSM - Free Report) – Zacks Rank #2
The latest job report has added to the strength to the economy. Several other data points too came in at upbeat. If the Fed continues to hike rate, the greenback should remain strong, which is a plus for the more domestically-focused small-cap stocks.
Financials (17.79%), Industrials (17.76%), Consumer Discretionary (13.74%), Information Technology (13.47%) and Health Care (10.65%) have a double-dight weights in the fund. The fund charges 5 bps in fees.
Industrial Select Sector SPDR ETF (XLI - Free Report) – Zacks Rank #2
Industrial stocks historically yielded encouraging returns from December to May. Biden’s huge infrastructure plan is a positive for the space.
The underlying Industrial Select Sector Index includes companies from the following industries: industrial conglomerates; aerospace & defense; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors. The fund charges 10 bps in fees.