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Dow Jones ETFs Continue Winning Run as Rates at 2001 High
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The Federal Reserve raised its benchmark interest rate by 0.25% on Wednesday, leaving room for more hikes this year. Short-term rates are now at the 5.25%-5.50% range, the highest since March 2001. This is the 11th increase since March 2022, and the Fed stated future hikes will depend on the economy and financial developments. The decision was unanimous.
"The process of getting inflation back down to 2% has a long way to go," Fed Chair Jay Powell said in a press conference Wednesday, as quoted on Yahoo. Powell added that bringing down inflation "is likely to require a period of below-trend growth and some softening of labor market conditions."
Why Dow Jones Should Perform Better Than Peer Indexes Now
The Dow Jones Industrial Average continued to score gains as it prolonged its winning streak to 13 sessions, its longest since 1987, quoted on Yahoo. The Dow Jones lagged its peers in the first half of 2023 because the Fed had been less hawkish, which favored the growth-stock-heavy Nasdaq.
Since Dow stocks are value stocks in nature, rising rates were good for value stocks. However, the Dow Jones has now caught up with its peers in the past month as the index rallied 4.1%, whereas S&P 500 and the Nasdaq each have added 3.9%.
Against this backdrop, investors can bet on iShares Dow Jones U.S. ETF (IYY - Free Report) , SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) , Invesco Dow Jones Industrial Average Dividend ETF (DJD - Free Report) , Proshares Ultra Dow30 (DDM) and UltraPro Dow30 (UDOW - Free Report) .
Inside the Potential for a Rebound of Dow Jones
Upbeat Big Bank Earnings May Cause Revival in Dow Jones
The Dow Jones has the highest exposure (20.36%) to financial stocks, followed by Information Technology (18.81%) and healthcare (18.81%). Healthcare stocks are recession-proof. UnitedHealth Group (UNH - Free Report) and Johnson & Johnson (JNJ - Free Report) – prominent components of the Dow Jones – have come up with upbeat results and hiked guidance this reporting season.
Plus, big bank earnings showed promise in the ongoing earnings reporting season on strong consumer-led businesses. Most big banks have come up with both line beats this reporting season. Information Technology giants, in any case, are in great shape this year, owing to the AI craze. Industrials stocks have also been trying to log a recovery.
Ebbing Recession Fears = Chances of More Rate Hikes
Recessionary fears are ebbing in the United States. With the U.S. economy witnessing upbeat economic data points and the second-quarter earnings season unfolding in a decent manner, Goldman Sachs and Bank of America lowered its recession forecast. A sound economy means the Fed has more room for future rate hikes. And higher rates are positives for value-centric Dow Jones.
Relatively Cheaper Valuation
Cheaper valuation is another tailwind. At the current level, Dow Jones has a P/E of 16.82X, whereas the S&P 500 has a P/E of 17.86X and the Nasdaq-100 has a P/E of 22.70X. This was because the Dow Jones suffered a lot in the first half of 2023, which provided the index the scope to fare better in the second half.
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Dow Jones ETFs Continue Winning Run as Rates at 2001 High
The Federal Reserve raised its benchmark interest rate by 0.25% on Wednesday, leaving room for more hikes this year. Short-term rates are now at the 5.25%-5.50% range, the highest since March 2001. This is the 11th increase since March 2022, and the Fed stated future hikes will depend on the economy and financial developments. The decision was unanimous.
"The process of getting inflation back down to 2% has a long way to go," Fed Chair Jay Powell said in a press conference Wednesday, as quoted on Yahoo. Powell added that bringing down inflation "is likely to require a period of below-trend growth and some softening of labor market conditions."
Why Dow Jones Should Perform Better Than Peer Indexes Now
The Dow Jones Industrial Average continued to score gains as it prolonged its winning streak to 13 sessions, its longest since 1987, quoted on Yahoo. The Dow Jones lagged its peers in the first half of 2023 because the Fed had been less hawkish, which favored the growth-stock-heavy Nasdaq.
Since Dow stocks are value stocks in nature, rising rates were good for value stocks. However, the Dow Jones has now caught up with its peers in the past month as the index rallied 4.1%, whereas S&P 500 and the Nasdaq each have added 3.9%.
Against this backdrop, investors can bet on iShares Dow Jones U.S. ETF (IYY - Free Report) , SPDR Dow Jones Industrial Average ETF Trust (DIA - Free Report) , Invesco Dow Jones Industrial Average Dividend ETF (DJD - Free Report) , Proshares Ultra Dow30 (DDM) and UltraPro Dow30 (UDOW - Free Report) .
Inside the Potential for a Rebound of Dow Jones
Upbeat Big Bank Earnings May Cause Revival in Dow Jones
The Dow Jones has the highest exposure (20.36%) to financial stocks, followed by Information Technology (18.81%) and healthcare (18.81%). Healthcare stocks are recession-proof. UnitedHealth Group (UNH - Free Report) and Johnson & Johnson (JNJ - Free Report) – prominent components of the Dow Jones – have come up with upbeat results and hiked guidance this reporting season.
Plus, big bank earnings showed promise in the ongoing earnings reporting season on strong consumer-led businesses. Most big banks have come up with both line beats this reporting season. Information Technology giants, in any case, are in great shape this year, owing to the AI craze. Industrials stocks have also been trying to log a recovery.
Ebbing Recession Fears = Chances of More Rate Hikes
Recessionary fears are ebbing in the United States. With the U.S. economy witnessing upbeat economic data points and the second-quarter earnings season unfolding in a decent manner, Goldman Sachs and Bank of America lowered its recession forecast. A sound economy means the Fed has more room for future rate hikes. And higher rates are positives for value-centric Dow Jones.
Relatively Cheaper Valuation
Cheaper valuation is another tailwind. At the current level, Dow Jones has a P/E of 16.82X, whereas the S&P 500 has a P/E of 17.86X and the Nasdaq-100 has a P/E of 22.70X. This was because the Dow Jones suffered a lot in the first half of 2023, which provided the index the scope to fare better in the second half.