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Growth ETFs to Be On a Roll on Cooler-Than-Expected Inflation?
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The consumer price index (CPI) rose by 3.2% year-on-year in July, marking the first significant increase in over a year. However, this was slightly below the anticipated 3.3% forecast. On a monthly basis, prices saw a seasonally adjusted increase of 0.2%, aligning with the Dow Jones estimate, as quoted on CNBC.
Key Takeaways from the Data
Core CPI: Excluding the volatile sectors of food and energy, the core CPI also rose by 0.2% for the month. This translates to an annual rate of 4.7%, the lowest since October 2021, and slightly below the Dow Jones consensus estimate of 4.8%.
Major Contributors: The primary driver for the monthly inflation increase was shelter costs, which surged by 0.4% and are up 7.7% from the previous year. The Bureau highlighted that over 90% of the inflation increase was attributed to this category, which constitutes about a third of the CPI weighting.
Other Notable Movements: Food prices increased by 0.2% monthly, while energy prices saw a marginal rise of 0.1%. Interestingly, used vehicle prices dropped by 1.3%, and airline fares, which had skyrocketed during the early days of the Covid pandemic, decreased by 8.1% for the month.
Real Wages: The subdued inflation levels contributed to a boost in worker pay. Real wages rose by 0.3% monthly and saw a 1.1% increase year-on-year.
What Could be Federal Reserve's Stance?
The data indicates that inflation has significantly reduced from its 40-year peak in mid-2022. However, it remains considerably above the Federal Reserve's desired 2% level, making interest rate cuts unlikely in the near future. But then, after raising the benchmark interest rates 11 times since March 2022, the central bank is expected to pause in September, per market experts, as quoted on CBC.
This is especially true given the regional banking crisis is still in the U.S. economy. Moreover,with increasing financial strain, consumers are using credit cards increasingly. Credit card debt surpassed $1 trillion for the first time this year (read: Moody's Downgrade 10 U.S. Banks: ETF Strategies to Play).
Economic Growth Continues to Show Resilience
Despite the elevated rates, the U.S. economy has shown resilience. The first half of 2023 witnessed GDP gains of 2% and 2.4% in consecutive quarters. The Atlanta Fed projects a 4.1% growth for the third quarter. Although payroll gains have decelerated, unemployment is nearing its lowest since 1969.
Time for Growth ETFs?
The cues of cooling Fed rate hike momentum should bode well for growth investing as the segment performs better in a low-rate environment. However, we have highlighted a few growth ETFs that have a Zacks Rank #1 (Strong Buy) or Rank #2 (Buy).
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)
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Growth ETFs to Be On a Roll on Cooler-Than-Expected Inflation?
The consumer price index (CPI) rose by 3.2% year-on-year in July, marking the first significant increase in over a year. However, this was slightly below the anticipated 3.3% forecast. On a monthly basis, prices saw a seasonally adjusted increase of 0.2%, aligning with the Dow Jones estimate, as quoted on CNBC.
Key Takeaways from the Data
Core CPI: Excluding the volatile sectors of food and energy, the core CPI also rose by 0.2% for the month. This translates to an annual rate of 4.7%, the lowest since October 2021, and slightly below the Dow Jones consensus estimate of 4.8%.
Major Contributors: The primary driver for the monthly inflation increase was shelter costs, which surged by 0.4% and are up 7.7% from the previous year. The Bureau highlighted that over 90% of the inflation increase was attributed to this category, which constitutes about a third of the CPI weighting.
Other Notable Movements: Food prices increased by 0.2% monthly, while energy prices saw a marginal rise of 0.1%. Interestingly, used vehicle prices dropped by 1.3%, and airline fares, which had skyrocketed during the early days of the Covid pandemic, decreased by 8.1% for the month.
Real Wages: The subdued inflation levels contributed to a boost in worker pay. Real wages rose by 0.3% monthly and saw a 1.1% increase year-on-year.
What Could be Federal Reserve's Stance?
The data indicates that inflation has significantly reduced from its 40-year peak in mid-2022. However, it remains considerably above the Federal Reserve's desired 2% level, making interest rate cuts unlikely in the near future. But then, after raising the benchmark interest rates 11 times since March 2022, the central bank is expected to pause in September, per market experts, as quoted on CBC.
This is especially true given the regional banking crisis is still in the U.S. economy. Moreover,with increasing financial strain, consumers are using credit cards increasingly. Credit card debt surpassed $1 trillion for the first time this year (read: Moody's Downgrade 10 U.S. Banks: ETF Strategies to Play).
Economic Growth Continues to Show Resilience
Despite the elevated rates, the U.S. economy has shown resilience. The first half of 2023 witnessed GDP gains of 2% and 2.4% in consecutive quarters. The Atlanta Fed projects a 4.1% growth for the third quarter. Although payroll gains have decelerated, unemployment is nearing its lowest since 1969.
Time for Growth ETFs?
The cues of cooling Fed rate hike momentum should bode well for growth investing as the segment performs better in a low-rate environment. However, we have highlighted a few growth ETFs that have a Zacks Rank #1 (Strong Buy) or Rank #2 (Buy).
ETFs in Focus
Xtrackers S&P 500 Growth ESG ETF (SNPG - Free Report) – Zacks Rank #2 (Buy)
Nuveen ESG Large-Cap ETF (NULC - Free Report) – Zacks Rank #2
Goldman Sachs JUST U.S. Large Cap Equity ETF (JUST - Free Report) – Zacks Rank #2
SPDR Portfolio S&P 500 Growth ETF (SPYG - Free Report) – Zacks Rank #2
Vanguard S&P 500 Growth ETF (VOOG - Free Report) – Zacks Rank #2
iShares S&P 500 Growth ETF (IVW - Free Report) – Zacks Rank #2
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)