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The U.S. consumer price index, a broad measure of goods and services costs, rose 0.4% sequentially in February and 3.2% year over year, the Labor Department’s Bureau of Labor Statistics reported Tuesday. The monthly gain was in line with expectations, but the annual rate was slightly ahead of the 3.1% forecast from the Dow Jones consensus.
Hot inflation readings for the first two months of 2024 aren’t going to prompt the Fed to lower rates quickly, per some market watchers. Hence, cues of higher-for-longer rates have weighed on the broader market this week.
Against this backdrop, below we highlight a few ETF investing strategies that can be gainful for investors.
Play Inflation-Fighting ETFs
Of late, Wall Street has seen launches of several inflation-fighting ETFs like Amplify Inflation Fighter ETF (IWIN - Free Report) , AXS Astoria Inflation Sensitive ETF (PPI - Free Report) , Fidelity Stocks For Inflation ETF (FCPI - Free Report) , VanEck Inflation Allocation ETF (RAAX) and Horizon Kinetics Inflation Beneficiaries ETF (INFL). Some of these ETFs invest in asset classes that look to benefit, either directly or indirectly, from inflation while some invest directly or indirectly, in a mix of U.S. Treasury Inflation-Protected Securities and long options tied to the shape of the U.S. interest rate curve (read: 6 ETFs to Play "Upside Risks" to Inflation).
Play ETFs That Protect You From Higher Rates
In reflection of the sticky inflation data,the benchmark 10-year U.S. treasury yield jumped to 4.29% on Mar 14, 2024 from 4.09% recorded on Mar 8, 2024. The two-year U.S. treasury yield too jumped by 20 bps to 4.68% during this timeframe.
The Fed is due to meet on Mar 20, 2024, and the rates are likely to remain the same this month. At the current level, there is a 54.5% chance (down from 58.2% recorded a day ago) of a 25-bp rate cut in June, per the CME FedWatch Tool.
Against this scenario, ETFs that offer protection from higher rates should be in vogue. These ETFs include Simplify Interest Rate Hedge ETF (PFIX - Free Report) , Global X Interest Rate Hedge ETF (RATE - Free Report) and FolioBeyond Alternative Income And Interest Rate Hedge ETF (RISR - Free Report) .
Short Gold?
Gold market recently witnessed some selling pressure due to hot inflation reading which means prolonged period of higher rates. As gold is a non-interest-bearing asset, the yellow metal is expected to underperform if rates remain higher for longer. The largest gold bullion ETF SPDR Gold Trust (GLD - Free Report) is off 0.3% this week. Investors can tap inverse gold ETFs like ProShares UltraShort Gold (GLL - Free Report) , DB Gold Double Short Exchange Traded Notes (DZZ) and MicroSectors Gold Miners -3X Inverse Leveraged ETNs (GDXD).
Time for Energy ETFs?
The energy sector, which includes oil and gas companies, has historically offered upbeat performance in a rising inflationary environment. Such firms beat inflation 74% of the time and delivered an annual real return of 12.9% per year on average, per a research report of Hartford Funds.
The revenues of energy stocks are tied to energy prices, a key component of inflation indices. This time also, rise in oil prices increased inflation globally. Crude oil is hovering around $80-level. The IEA warned that energy supply would lag this year and U.S. stockpiles too fell. This along with geopolitical tensions may push up oil prices. And energy ETFs should emerge outperformers. iShares US Oil Equipment & Services ETF (IEZ - Free Report) is up 8.5% past month (read: 4 Sector ETFs to Fight Sticky Inflation).
Value ETFs to Gain Traction?
Given this edgy investing backdrop, investors can bet on large-cap value ETFs. After all, value investing requires buying securities that appear underpriced. Also, value stocks perform better than growth stocks in a rising rate environment. SPDR Portfolio S&P 500 Value ETF (SPYV - Free Report) , Vanguard Mega Cap Value ETF (MGV), Alps OShares U.S. Quality Dividend ETF (OUSA - Free Report) and Siren DIVCON Leaders Dividend ETF (LEAD - Free Report) are some of the top-ranked value ETFs that may gain if inflation continues to stay hot.
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ETF Strategies to Play Hot inflation Data
The U.S. consumer price index, a broad measure of goods and services costs, rose 0.4% sequentially in February and 3.2% year over year, the Labor Department’s Bureau of Labor Statistics reported Tuesday. The monthly gain was in line with expectations, but the annual rate was slightly ahead of the 3.1% forecast from the Dow Jones consensus.
Hot inflation readings for the first two months of 2024 aren’t going to prompt the Fed to lower rates quickly, per some market watchers. Hence, cues of higher-for-longer rates have weighed on the broader market this week.
Against this backdrop, below we highlight a few ETF investing strategies that can be gainful for investors.
Play Inflation-Fighting ETFs
Of late, Wall Street has seen launches of several inflation-fighting ETFs like Amplify Inflation Fighter ETF (IWIN - Free Report) , AXS Astoria Inflation Sensitive ETF (PPI - Free Report) , Fidelity Stocks For Inflation ETF (FCPI - Free Report) , VanEck Inflation Allocation ETF (RAAX) and Horizon Kinetics Inflation Beneficiaries ETF (INFL). Some of these ETFs invest in asset classes that look to benefit, either directly or indirectly, from inflation while some invest directly or indirectly, in a mix of U.S. Treasury Inflation-Protected Securities and long options tied to the shape of the U.S. interest rate curve (read: 6 ETFs to Play "Upside Risks" to Inflation).
Play ETFs That Protect You From Higher Rates
In reflection of the sticky inflation data,the benchmark 10-year U.S. treasury yield jumped to 4.29% on Mar 14, 2024 from 4.09% recorded on Mar 8, 2024. The two-year U.S. treasury yield too jumped by 20 bps to 4.68% during this timeframe.
The Fed is due to meet on Mar 20, 2024, and the rates are likely to remain the same this month. At the current level, there is a 54.5% chance (down from 58.2% recorded a day ago) of a 25-bp rate cut in June, per the CME FedWatch Tool.
Against this scenario, ETFs that offer protection from higher rates should be in vogue. These ETFs include Simplify Interest Rate Hedge ETF (PFIX - Free Report) , Global X Interest Rate Hedge ETF (RATE - Free Report) and FolioBeyond Alternative Income And Interest Rate Hedge ETF (RISR - Free Report) .
Short Gold?
Gold market recently witnessed some selling pressure due to hot inflation reading which means prolonged period of higher rates. As gold is a non-interest-bearing asset, the yellow metal is expected to underperform if rates remain higher for longer. The largest gold bullion ETF SPDR Gold Trust (GLD - Free Report) is off 0.3% this week. Investors can tap inverse gold ETFs like ProShares UltraShort Gold (GLL - Free Report) , DB Gold Double Short Exchange Traded Notes (DZZ) and MicroSectors Gold Miners -3X Inverse Leveraged ETNs (GDXD).
Time for Energy ETFs?
The energy sector, which includes oil and gas companies, has historically offered upbeat performance in a rising inflationary environment. Such firms beat inflation 74% of the time and delivered an annual real return of 12.9% per year on average, per a research report of Hartford Funds.
The revenues of energy stocks are tied to energy prices, a key component of inflation indices. This time also, rise in oil prices increased inflation globally. Crude oil is hovering around $80-level. The IEA warned that energy supply would lag this year and U.S. stockpiles too fell. This along with geopolitical tensions may push up oil prices. And energy ETFs should emerge outperformers. iShares US Oil Equipment & Services ETF (IEZ - Free Report) is up 8.5% past month (read: 4 Sector ETFs to Fight Sticky Inflation).
Value ETFs to Gain Traction?
Given this edgy investing backdrop, investors can bet on large-cap value ETFs. After all, value investing requires buying securities that appear underpriced. Also, value stocks perform better than growth stocks in a rising rate environment. SPDR Portfolio S&P 500 Value ETF (SPYV - Free Report) , Vanguard Mega Cap Value ETF (MGV), Alps OShares U.S. Quality Dividend ETF (OUSA - Free Report) and Siren DIVCON Leaders Dividend ETF (LEAD - Free Report) are some of the top-ranked value ETFs that may gain if inflation continues to stay hot.