Wall Street may record a short-term rally as wagers on steep rate hikes have cooled down, and so have the chances for debt default. Fed Chair Jerome Powell’s recent dovish remarks may send Wall Street into a rallying mode.

Let’s delve a little deeper.

Federal Reserve to Hold the Reins?

Jerome Powell, Chair of the Federal Reserve, revealed on Friday that the banking sector's ongoing turbulence could potentially result in a softer approach to controlling inflation, indicating that interest rates may not need to climb as steeply as initially predicted, as quoted on CNBC.

The U.S. central bank has implemented measures to curb severe outcomes from emerging issues within mid-tier banks, specifically mentioning Silicon Valley Bank among others. These initiatives, while easing the banking sector's instability, are expected to lead to tighter credit conditions that could strain economic growth and inflation.

How Investors Took Powell’s Comments

The markets have primarily interpreted Powell's remarks as a signal that the Fed may pause its rate-hiking spree in its forthcoming June meeting. The Federal Reserve has been increasing rates since March 2022 to contain inflation, which soared to a 41-year high last summer.

However, the impacts of these policies are yet to fully circulate through the economy. The central bank's monetary policy, aimed primarily at slowing down a heated labor market, along with a low unemployment rate of 3.4%, has been described by Powell as "restrictive". The Federal Open Market Committee (FOMC) has raised its borrowing rate target to between 5% and 5.25%.

Cooling Inflation

The annual inflation rate in the United States dropped to 4.9% in April 2023, the lowest since April 2021, and below market forecasts of 5%. Compared to the previous month, the CPI rose 0.4%, much higher than 0.1% in March but matching market expectations.

Why Growth ETFs Are Likely to Rally

Traditionally, growth ETFs have performed well in periods of low interest rates as the borrowing costs for companies stay low, enabling them to invest in expansion and innovation. The cues of cooling inflation and lowered risk of an aggressive rate-hike cycle should bode well for growth investing. Moreover, the segment suffered a lot in 2022.

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 Quick QuoteRPG - Free Report) ) – Zacks Rank #2 (Buy); P/E: 10.63X

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 Quick QuoteFTC - 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 Quick QuoteQQQJ - Free Report) ) – Zacks Rank #2; P/E: 17.78X

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 Quick QuotePWB - Free Report) ) – Zacks Rank #2; P/E: 22.28X

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.