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5 Top ETF Stories of February To Be Watched in March

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Wall Street surged to close out February with the S&P 500 and Nasdaq Composite notching their best February since 2015. The Nasdaq gained more than 6% and the S&P 500 advanced more than 5% throughout the month. The Dow Jones eked out 1.24% gains in the past one month while the Russell 2000 surged 4.1% past month.

Against this backdrop, below we highlight a few ETF investing stories of February that deserve a look in March.

Slowing PCE Inflation

Investor sentiment was buoyed by a notable easing in inflation. U.S. Personal Consumption Expenditures (PCE) inflation dropped to 2.4% on a yearly basis in January. This reading followed the 2.6% uptick recorded in December and came in line with the market expectation. On a monthly basis, the PCE Price Index rose 0.3% as forecast. The "core" PCE also dipped to 2.8% from 2.9% in the preceding month. No wonder, Amplify Inflation Fighter ETF (IWIN - Free Report) lost 0.3% past month. In March also, inflation reading would be crucial to Federal Reserve and investors.

Bitcoin Rally

Meanwhile, in the cryptocurrency realm, bitcoin maintained its position above $62,000 on Feb 29, 2024. The arrival of spot bitcoin ETFs has helped the cryptocurrency reach levels not seen since late 2021. Bitcoin has been leading the charge with a huge 44% price jump in February, marking its most substantial monthly gain since December 2020 (read: Will Bitcoin Hit $200,000 in Current Bull Market? ETFs in Focus).

After experiencing a robust surge, this run-up reminds us of the rally just before the "crypto winter" in 2022. The leading cryptocurrency is on the brink of reaching a new all-time high but the way ahead is filled with doubts. First Trust SkyBridge Crypto Industry & Digital Economy ETF (CRPT - Free Report) jumped as much as 56.8% in February.

The surge in prices primarily came on the back of the arrival of spot bitcoin ETFs, bitcoin’s growing acceptance as a hedge against inflation as well as a good replacement of gold and a scheduled halving event. The upcoming halving event scheduled for Apr 2024 will lessen the supply of bitcoins, which in turn would boost prices. But many is fearing if the halving event is currently priced-in.

Fed Rate Cuts Unlikely in March: Expected in Late 2024

Markets see a strong chance of the Federal Reserve keeping the policy rate unchanged in March and May as the Fed looks for more cues of a sustained economic recovery and falling inflation. However, Cleveland Fed president Loretta Mester expects three rate cuts later in 2024. As a result, stocks soared in February and is likely to maintain the winning momentum in March. This should boost risk-on growth ETFs like iShares Blockchain and Tech ETF (IBLC - Free Report) (up 27.2% in February).

Upbeat Earnings Growth: Outlook Bullish

According to recent FactSet data, with 97% of the S&P 500 having reported earnings for the fourth quarter, there's an expected earnings growth of 4% compared to the same period last year. This signifies the benchmark index's second consecutive quarter of earnings growth.

WisdomTree U.S. LargeCap ETF (EPS - Free Report) – which measures the performance of earnings-generating companies within the large-capitalization segment of the U.S. Stock Market – has added more than 3% in February and is up 24.7% past year.

What's particularly noteworthy is that the forecast for earnings growth in the current quarter isn't declining at the usual rate. John Butters, senior earnings analyst at FactSet, pointed out that analysts typically lower earnings estimates during the first two months of a quarter, with an average reduction of 2.9% over the past 20 years. However, for the current quarter, earnings estimates have only been revised down by 2.2%, as quoted on Yahoo Finance.

Keep a Watch on Bank of Japan’s Meeting

Japan’s benchmark inflation topped expectations in January, pointing toward likely adjustments to the central bank's monetary policy. Following the release of data in late February, bond yields surged. The two-year note yield jumped to the highest level since 2011.

This development points at the growing speculation that the Bank of Japan (BOJ) may abandon its negative interest rate policy as early as in March, leading to its first interest rate hike since 2007. However, some analysts also expect the first interest rate hike since 2007 by April (read: What Lies Ahead of Japan ETFs If BoJ Hikes Rates Soon?).

If the BoJ hikes rates soon, there are a few investing areas that could gain. First, a kind of monetary policy tightening is likely to benefit Invesco CurrencyShares Japanese Yen Trust (FXY - Free Report) . The Japanese Yen is the national currency of Japan and the currency of the accounts of the Bank of Japan, the Japanese central bank. The fund is off 10% past year, which means that it is available at a cheaper valuation.

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