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Wall Street may record a short-term rally as wagers on steep rate hikes have cooled down, and so have the banking concerns. Wall Street went into a tailspin last week and early this week due to the collapse of Silicon Valley Bank, Signature Bank and Silvergate Bank.
The crisis hit the market at a time when market participants were already worried about the rate hike momentum, following Fed Chair Jerome Powell’s recent hawkish remarks. However, the banking crisis, along with cooling U.S. inflation and labor market, has lowered the chances of Fed’s rate hike this month.
Let’s delve a little deeper.
Cooling Inflation
The annual inflation rate in the United States slowed to 6% in February 2023, the lowest since September 2021, in line with market forecasts and compared to 6.4% in January. Compared to the previous month, the CPI increased 0.4%, following a prior 0.5% gain and matching forecasts. The core rate, however, inched up to 0.5% from 0.4% compared to forecasts of 0.4%.
Labor Market Easing
The United States economy added 311,000 jobs in February 2023, beating market expectations of 225,000. The unemployment rate in the United States edged up to 3.6% in February 2023, up from a 50-year low of 3.4% recorded in January and above market expectations of 3.4%. This shows signs of cooling in the U.S. labor market — a factor that the Fed considers thoroughly before taking a rate hike decision.
Rising Rates Weighing Heavily on Some Sectors
Silicon Valley Bank catered to risky zones like start-ups, venture capital, biotech companies and early-stage tech, while Silvergate Bank was associated with cryptocurrency. Hence, rising rate concerns amid the Fed’s steeper hikes in the past year (in order to tame high inflation) have weighed on these high-growth sectors like technology. Small caps and start-up companies have also been in a tight spot. This is why the U.S. central bank is more likely to stay put, at least for the near term.
Will Fed Hike Rates This Month? If Yes, Then How Much?
Goldman Sachs no longer sees a case for the Fed to opt for a rate hike at its meeting next week, citing the “recent stress” in the financial sector, as quoted on CNBC. The firm had previously expected the Federal Reserve to hike rates by 25 basis points.
Per CME Fed Watch Tool, there is a 79.0% chance of a 25-bp rate hike this month (versus 65% chance recorded a day before), a 21% chance of no rate hike (versus 35% chance recorded a day before) and 0% chance of a 50-bp rate hike (versus 0% chance recorded a day before).
Actually, there are a few market participants who believe that the Fed may stick to its rate-hike path to keep investors’ confidence intact in the U.S. economy’s financial system. Moreover, the banking crisis was handled by the regulatory authorities quickly. Depositors are likely to bank in a normal manner with no taxpayers’ money involved in salvaging banks. But it is highly unlikely for the Fed to opt for more than a 25-bp rate hike.
The cues of cooling Fed rate hike momentum should bode well for growth investing as the segment suffered a lot in 2022. However, we have highlighted low P/E growth ETFs that are still-cheap in valuation as the investing backdrop is still edgy.
The underlying S&P 500 Pure Growth Index measures the performance of securities that exhibit strong growth characteristics in the S&P 500 Index. The fund charges 35 bps in fees.
First Trust Large Cap Growth AlphaDEX ETF (FTC - Free Report) – Zacks Rank #2; P/E: 16.47X
The underlying NASDAQ AlphaDEX Large Cap Growth Index is an enhanced index that employs the AlphaDEX stock selection methodology to pick stocks from the NASDAQ US 500 Large Cap Growth Index. The fund charges 59 bps in fees.
Invesco NASDAQ Next Gen 100 ETF (QQQJ - Free Report) – Zacks Rank #2; P/E: 17.73X
The underlying NASDAQ Next Generation 100 Index comprises securities of the next generation of Nasdaq-listed non-financial companies; that is, the largest 100 Nasdaq-listed companies outside of the NASDAQ-100 Index. The fund charges 15 bps in fees.
Invesco Dynamic Large Cap Growth ETF (PWB - Free Report) – Zacks Rank #2; P/E: 22.27X
The underlying Dynamic Large Cap Growth Intellidex Index is designed to provide capital appreciation while maintaining consistent stylistically accurate exposure. The fund charges 55 bps in fees.
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Wall Street may record a short-term rally as wagers on steep rate hikes have cooled down, and so have the banking concerns. Wall Street went into a tailspin last week and early this week due to the collapse of Silicon Valley Bank, Signature Bank and Silvergate Bank.
The crisis hit the market at a time when market participants were already worried about the rate hike momentum, following Fed Chair Jerome Powell’s recent hawkish remarks. However, the banking crisis, along with cooling U.S. inflation and labor market, has lowered the chances of Fed’s rate hike this month.
Let’s delve a little deeper.
Cooling Inflation
The annual inflation rate in the United States slowed to 6% in February 2023, the lowest since September 2021, in line with market forecasts and compared to 6.4% in January. Compared to the previous month, the CPI increased 0.4%, following a prior 0.5% gain and matching forecasts. The core rate, however, inched up to 0.5% from 0.4% compared to forecasts of 0.4%.
Labor Market Easing
The United States economy added 311,000 jobs in February 2023, beating market expectations of 225,000. The unemployment rate in the United States edged up to 3.6% in February 2023, up from a 50-year low of 3.4% recorded in January and above market expectations of 3.4%. This shows signs of cooling in the U.S. labor market — a factor that the Fed considers thoroughly before taking a rate hike decision.
Rising Rates Weighing Heavily on Some Sectors
Silicon Valley Bank catered to risky zones like start-ups, venture capital, biotech companies and early-stage tech, while Silvergate Bank was associated with cryptocurrency. Hence, rising rate concerns amid the Fed’s steeper hikes in the past year (in order to tame high inflation) have weighed on these high-growth sectors like technology. Small caps and start-up companies have also been in a tight spot. This is why the U.S. central bank is more likely to stay put, at least for the near term.
Will Fed Hike Rates This Month? If Yes, Then How Much?
Goldman Sachs no longer sees a case for the Fed to opt for a rate hike at its meeting next week, citing the “recent stress” in the financial sector, as quoted on CNBC. The firm had previously expected the Federal Reserve to hike rates by 25 basis points.
Per CME Fed Watch Tool, there is a 79.0% chance of a 25-bp rate hike this month (versus 65% chance recorded a day before), a 21% chance of no rate hike (versus 35% chance recorded a day before) and 0% chance of a 50-bp rate hike (versus 0% chance recorded a day before).
Actually, there are a few market participants who believe that the Fed may stick to its rate-hike path to keep investors’ confidence intact in the U.S. economy’s financial system. Moreover, the banking crisis was handled by the regulatory authorities quickly. Depositors are likely to bank in a normal manner with no taxpayers’ money involved in salvaging banks. But it is highly unlikely for the Fed to opt for more than a 25-bp rate hike.
The cues of cooling Fed rate hike momentum should bode well for growth investing as the segment suffered a lot in 2022. However, we have highlighted low P/E growth ETFs that are still-cheap in valuation as the investing backdrop is still edgy.
ETFs in Focus
Invesco S&P 500 Pure Growth ETF (RPG - Free Report) – Zacks Rank #2 (Buy); P/E: 10.64X
The underlying S&P 500 Pure Growth Index measures the performance of securities that exhibit strong growth characteristics in the S&P 500 Index. The fund charges 35 bps in fees.
First Trust Large Cap Growth AlphaDEX ETF (FTC - Free Report) – Zacks Rank #2; P/E: 16.47X
The underlying NASDAQ AlphaDEX Large Cap Growth Index is an enhanced index that employs the AlphaDEX stock selection methodology to pick stocks from the NASDAQ US 500 Large Cap Growth Index. The fund charges 59 bps in fees.
Invesco NASDAQ Next Gen 100 ETF (QQQJ - Free Report) – Zacks Rank #2; P/E: 17.73X
The underlying NASDAQ Next Generation 100 Index comprises securities of the next generation of Nasdaq-listed non-financial companies; that is, the largest 100 Nasdaq-listed companies outside of the NASDAQ-100 Index. The fund charges 15 bps in fees.
Invesco Dynamic Large Cap Growth ETF (PWB - Free Report) – Zacks Rank #2; P/E: 22.27X
The underlying Dynamic Large Cap Growth Intellidex Index is designed to provide capital appreciation while maintaining consistent stylistically accurate exposure. The fund charges 55 bps in fees.