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Slowest Inflation Since Sep'21 to Boost Growth ETFs in Near Term
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The Consumer Price Index (CPI) showed prices rose 0% over last month and 3.2% over the prior year in October, a deceleration from September's 0.4% monthly increase and 3.7% annual gain in prices. Core inflation marked its slowest pace in over two years.
Economists' expectations fell short of the actual data, as they had predicted a 0.1% month-over-month increase and a 3.3% year-over-year increase in prices. Core prices were also anticipated to rise by 0.3% over the prior month and 4.1% over the previous year.
Inside the Reading
Stagnant Consumer Prices: Consumer prices remained unchanged from the previous month in October, primarily due to a decline in oil prices.
Energy Price Impact: Lower energy costs played a crucial role in dampening the overall inflation figures, with energy prices dropping by 2.5% month-over-month. Gas prices, in particular, decreased by 5% during October.
Federal Reserve's Likely Response: Despite inflation remaining above the Federal Reserve's 2% target, the market's sentiment suggested that the Federal Reserve was unlikely to raise interest rates in December.
Market Reaction: Following the release of this data, market indicators showed a nearly 95% probability that the Federal Reserve would keep interest rates unchanged in December, as reflected in data from the CME Group.
Growth ETFs to Benefit
Wall Street may record a short-term rally as wagers on rate hikes will cool down due to slowing of inflation. And the cues of cooling Fed rate hike momentum should bode well for growth investing especially as the segment outperforms in a low-rate environment. However, we have highlighted low P/E growth ETFs that are still-cheap in valuation as the investing backdrop is still edgy. These ETFs carry lower P/E than the S&P 500 (i.e. 22.20X).
ETFs in Focus
First Trust Multi Cap Growth AlphaDEX ETF (FAD - Free Report) – Zacks Rank #2 (Buy); P/E: 19.02X
The underlying NASDAQ AlphaDEX Multi Cap Growth Index is an enhanced which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 500 Large Cap Index, NASDAQ US 600 Mid Cap Index and NASDAQ US 700 Small Cap Index. The fund charges 63 bps in fees.
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.
The underlying Bloomberg Pricing Power Index composes of U.S. large and mid-capitalization companies that are well-positioned to maintain stable profit margins in all market conditions while focusing on companies that have the smallest deviations among their annual gross profit margins over the last five years. The fund charges 40 bps in fees.
The underlying S&P MidCap 400 Growth Index measures the performance of the mid-capitalization growth sector in the U.S. equity market. The fund charges 15 bps in fees.
The underlying S&P MidCap 400 Growth Index measures the performance of the mid-capitalization growth sector of the U.S. equity market. The fund charges 17 bps in fees.
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Slowest Inflation Since Sep'21 to Boost Growth ETFs in Near Term
The Consumer Price Index (CPI) showed prices rose 0% over last month and 3.2% over the prior year in October, a deceleration from September's 0.4% monthly increase and 3.7% annual gain in prices. Core inflation marked its slowest pace in over two years.
Economists' expectations fell short of the actual data, as they had predicted a 0.1% month-over-month increase and a 3.3% year-over-year increase in prices. Core prices were also anticipated to rise by 0.3% over the prior month and 4.1% over the previous year.
Inside the Reading
Stagnant Consumer Prices: Consumer prices remained unchanged from the previous month in October, primarily due to a decline in oil prices.
Energy Price Impact: Lower energy costs played a crucial role in dampening the overall inflation figures, with energy prices dropping by 2.5% month-over-month. Gas prices, in particular, decreased by 5% during October.
Federal Reserve's Likely Response: Despite inflation remaining above the Federal Reserve's 2% target, the market's sentiment suggested that the Federal Reserve was unlikely to raise interest rates in December.
Market Reaction: Following the release of this data, market indicators showed a nearly 95% probability that the Federal Reserve would keep interest rates unchanged in December, as reflected in data from the CME Group.
Growth ETFs to Benefit
Wall Street may record a short-term rally as wagers on rate hikes will cool down due to slowing of inflation. And the cues of cooling Fed rate hike momentum should bode well for growth investing especially as the segment outperforms in a low-rate environment. However, we have highlighted low P/E growth ETFs that are still-cheap in valuation as the investing backdrop is still edgy. These ETFs carry lower P/E than the S&P 500 (i.e. 22.20X).
ETFs in Focus
First Trust Multi Cap Growth AlphaDEX ETF (FAD - Free Report) – Zacks Rank #2 (Buy); P/E: 19.02X
The underlying NASDAQ AlphaDEX Multi Cap Growth Index is an enhanced which employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ US 500 Large Cap Index, NASDAQ US 600 Mid Cap Index and NASDAQ US 700 Small Cap Index. The fund charges 63 bps in fees.
Invesco S&P 500 Pure Growth ETF (RPG - Free Report) – Zacks Rank #2; P/E: 12.94X
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.
Invesco Bloomberg Pricing Power ETF (POWA - Free Report) – Zacks Rank #2; P/E: 18.28X
The underlying Bloomberg Pricing Power Index composes of U.S. large and mid-capitalization companies that are well-positioned to maintain stable profit margins in all market conditions while focusing on companies that have the smallest deviations among their annual gross profit margins over the last five years. The fund charges 40 bps in fees.
SPDR S&P 400 Mid Cap Growth ETF (MDYG - Free Report) – Zacks Rank #2; P/E: 16.61X
The underlying S&P MidCap 400 Growth Index measures the performance of the mid-capitalization growth sector in the U.S. equity market. The fund charges 15 bps in fees.
iShares S&P Mid-Cap 400 Growth ETF (IJK - Free Report) – Zacks Rank #2; P/E: 15.11X
The underlying S&P MidCap 400 Growth Index measures the performance of the mid-capitalization growth sector of the U.S. equity market. The fund charges 17 bps in fees.