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Small Businesses Most Confident Since 2021: ETFs in Focus

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Small business owners are expressing a more positive outlook on the economy, with confidence reaching its highest level since President Joe Biden took office in 2021, as quoted on CNBC. According to the latest quarterly data from the CNBC|SurveyMonkey Small Business Survey, economic confidence among small business owners is on the upswing.

Positive Economic Sentiment

About 28% of small business owners now view the current state of the economy as "excellent" or "good," marking a significant increase from previous quarters and a notable jump from the previous year. This surge in optimism represents the highest level of confidence recorded since the inception of the CNBC|SurveyMonkey survey in Q2 of 2022.

Encouraging Trends

The Small Business Confidence Index, with a reading of 47 out of 100, has touched its peak since President Biden took office in Q1 of 2021. Despite lingering challenges such as inflation, recent data indicates a growing sense of confidence among consumers and small business owners regarding the economic landscape.

Inflation Poses Challenges But Fed Policy Productive

While optimism is on the rise, inflation remains a persistent concern for small business owners, with nearly a third identifying it as the most significant risk to their businesses. However, there is a cautious sense of optimism regarding inflation and overall costs, with confidence in the Federal Reserve's ability to control inflation reaching its highest level since early 2022.

Fed to Cut Rates in Late 2024?

While large-cap stocks are hitting all-time highs, attention has turned to the Federal Reserve's stance on interest rates. While a parade of Fed officials has hinted at future rate cuts, they differ on the timing of such moves. Despite indications of impending cuts, investors are now reassessing their expectations, with Goldman Sachs revising its projections downward (per a Yahoo Finance article).

The consensus now points to three rate cuts for 2024, down from previous expectations of six, as inflation data and cautious Fed comments prompt a recalibration of market forecasts. The Fed may start cutting rates from late 2024.

ETFs to Buy

Despite the overall optimism, concerns persist, particularly regarding consumer spending and the unpredictable nature of the current economic climate. Investors thus can depend on small-cap ETFs that diversify company-specific risks and offer exposure to the broader small-cap industry.

Vanguard Small-Cap ETF (VB - Free Report) – Zacks Rank #2 (Buy)

Past one-month performance: +3.3% (as of Feb 23, 2024)

Expense Ratio: 0.05% (as of Feb 23, 2024)

Vanguard Russell 2000 ETF (VTWO - Free Report) – Zacks Rank #2

Past one-month performance: +2.1%

Expense Ratio: 0.10%

iShares Morningstar Small-Cap Growth ETF (ISCG - Free Report) – Zacks Rank #1 (Strong Buy)

Past one-month performance: +3.9%

Expense Ratio: 0.06%

Schwab Fundamental U.S. Small Company Index ETF((FNDA - Free Report) ) – Zacks Rank #2

Past one-month performance: +1.1%

Expense Ratio: 0.25%

iShares Morningstar Small-Cap Value ETF (ISCV - Free Report) – Zacks Rank #2

Past one-month performance: +0.2%

Expense Ratio: 0.06%

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