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Predictions of a Steady Fed & Pullback? ETFs Capturing Attention
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In its March meeting, the Federal Reserve decided to hold interest rates steady, marking the fifth consecutive meeting without rate adjustments.
With rates currently sitting at 5.25-5.5%, the highest target range in over 22 years, the Fed still anticipates the need for three rate cuts in 2024, driven by expanding economic activity and easing but elevated inflation.
Vanguard's Market-Defying Perspective
However, contrary to the broad market view, Vanguard, one of the largest asset managers globally, forecasts that the Federal Reserve may maintain steady rates this year, ruling out any anticipated interest rate cuts, as quoted on CNBC.
Vanguard’s contrarian outlook is supported by Mark Okada, co-founder and CEO of Sycamore Tree Capital Partners, who also believes that the Fed may keep the rates steady for a longer period of time, expecting interest rate cuts after 2024.
A Pullback Lurking on the Market Horizon?
According to Reuters, some analysts suggest that the ongoing U.S. stock rally may be ready to take a pause. Some investors raise the concern that the economy is facing a risk of an impending pullback, which is contrary to the perspective of bullish investors. These investors argue that the market rally is driven by sound economic fundamentals rather than excessive speculation.
Per Kevin Gordon, senior investment strategist at Charles Schwab, as quoted on Reuters, the growing investor sentiment for rate cuts, leaves the market susceptible to a downturn. The surge in optimism is typically seen as a contrarian indicator, suggesting elevated expectations for positive surprises.
Per Reuters, recent history suggests a potential pause in the current advance. The S&P 500, which reached a record high on Jan 19, has risen approximately 7% since then. Similar past rallies post-new highs have been followed by declines of at least 5%, according to Sam Stovall, CFRA's chief investment strategist.
Exploring ETFs
Below, we have highlighted a few ETF areas that investors may consider expanding their exposure to. These offer a hedge amid uncertainties surrounding the path of interest rates and an impending pullback.
Value ETFs
Value stocks have a track record of long-term outperformance and resilience against market trends. Characterized by solid fundamentals such as earnings, dividends, book value, and cash flow, these stocks trade below their intrinsic value, representing undervaluation. They offer the potential for higher returns and lower volatility compared to growth and blend stocks.
Vanguard Value ETF (VTV - Free Report) – has gained 14.59% over the past year and 9.56% over the past three months.
iShares Russell 1000 Value ETF (IWD - Free Report) ) –has gained 13.85% over the past year and 9.50% over the past three months.
iShares S&P 500 Value ETF (IVE - Free Report) – has gained 21.48% over the past year and 9.01% over the past three months.
Quality ETFs
Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility, elevated margins and a track of stable or rising sales and earnings growth. As a result, these assets tend to exhibit lower volatility compared to standard funds and demonstrate resilience in the face of market fluctuations.
iShares MSCI USA Quality Factor ETF (QUAL - Free Report) – has gained 36.83% over the past year and 14.14% over the past three months.
Invesco S&P 500 Quality ETF (SPHQ - Free Report) – has gained 31.34% over the past year and 12.94% over the past three months.
American Century U.S. Quality Growth ETF (QGRO - Free Report) –has gained 34.49% over the past year and 15.06% over the past three months.
Dividend ETFs
Dividend-paying securities serve as primary sources of reliable income for investors, particularly during periods of equity market volatility. These stocks offer a dual advantage safety— in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. Companies offering dividends often act as a hedge against economic uncertainty.
Vanguard Dividend Appreciation ETF (VIG - Free Report) – has a dividend yield of 1.75% and 19.76% over the past year.
Schwab US Dividend Equity ETF (SCHD - Free Report) – has a dividend yield of 3.35% and 8.07% over the past year.
Vanguard High Dividend Yield Index ETF (VYM - Free Report) – has a dividend yield of 2.85% and 11.63% over the past year.
Consumer Staples ETFs
Consumer staples are essential products like food, beverages, household items, and hygiene products, including alcohol and tobacco. They are non-cyclical, with demand remaining consistent regardless of economic conditions.
Consumer Staples Select Sector SPDR Fund (XLP - Free Report) – has gained 6.12% over the past year and 6.20% over the past three months.
Vanguard Consumer Staples ETF (VDC - Free Report) – has gained 8.90% over the past year and 7.29% over the past three months.
iShares U.S. Consumer Staples ETF (IYK - Free Report) – has gained 3.99% over the past year and 3.52% over the past three months.
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Predictions of a Steady Fed & Pullback? ETFs Capturing Attention
In its March meeting, the Federal Reserve decided to hold interest rates steady, marking the fifth consecutive meeting without rate adjustments.
With rates currently sitting at 5.25-5.5%, the highest target range in over 22 years, the Fed still anticipates the need for three rate cuts in 2024, driven by expanding economic activity and easing but elevated inflation.
Vanguard's Market-Defying Perspective
However, contrary to the broad market view, Vanguard, one of the largest asset managers globally, forecasts that the Federal Reserve may maintain steady rates this year, ruling out any anticipated interest rate cuts, as quoted on CNBC.
Vanguard’s contrarian outlook is supported by Mark Okada, co-founder and CEO of Sycamore Tree Capital Partners, who also believes that the Fed may keep the rates steady for a longer period of time, expecting interest rate cuts after 2024.
A Pullback Lurking on the Market Horizon?
According to Reuters, some analysts suggest that the ongoing U.S. stock rally may be ready to take a pause. Some investors raise the concern that the economy is facing a risk of an impending pullback, which is contrary to the perspective of bullish investors. These investors argue that the market rally is driven by sound economic fundamentals rather than excessive speculation.
Per Kevin Gordon, senior investment strategist at Charles Schwab, as quoted on Reuters, the growing investor sentiment for rate cuts, leaves the market susceptible to a downturn. The surge in optimism is typically seen as a contrarian indicator, suggesting elevated expectations for positive surprises.
Per Reuters, recent history suggests a potential pause in the current advance. The S&P 500, which reached a record high on Jan 19, has risen approximately 7% since then. Similar past rallies post-new highs have been followed by declines of at least 5%, according to Sam Stovall, CFRA's chief investment strategist.
Exploring ETFs
Below, we have highlighted a few ETF areas that investors may consider expanding their exposure to. These offer a hedge amid uncertainties surrounding the path of interest rates and an impending pullback.
Value ETFs
Value stocks have a track record of long-term outperformance and resilience against market trends. Characterized by solid fundamentals such as earnings, dividends, book value, and cash flow, these stocks trade below their intrinsic value, representing undervaluation. They offer the potential for higher returns and lower volatility compared to growth and blend stocks.
Vanguard Value ETF (VTV - Free Report) – has gained 14.59% over the past year and 9.56% over the past three months.
iShares Russell 1000 Value ETF (IWD - Free Report) ) –has gained 13.85% over the past year and 9.50% over the past three months.
iShares S&P 500 Value ETF (IVE - Free Report) – has gained 21.48% over the past year and 9.01% over the past three months.
Quality ETFs
Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility, elevated margins and a track of stable or rising sales and earnings growth. As a result, these assets tend to exhibit lower volatility compared to standard funds and demonstrate resilience in the face of market fluctuations.
iShares MSCI USA Quality Factor ETF (QUAL - Free Report) – has gained 36.83% over the past year and 14.14% over the past three months.
Invesco S&P 500 Quality ETF (SPHQ - Free Report) – has gained 31.34% over the past year and 12.94% over the past three months.
American Century U.S. Quality Growth ETF (QGRO - Free Report) –has gained 34.49% over the past year and 15.06% over the past three months.
Dividend ETFs
Dividend-paying securities serve as primary sources of reliable income for investors, particularly during periods of equity market volatility. These stocks offer a dual advantage safety— in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. Companies offering dividends often act as a hedge against economic uncertainty.
Vanguard Dividend Appreciation ETF (VIG - Free Report) – has a dividend yield of 1.75% and 19.76% over the past year.
Schwab US Dividend Equity ETF (SCHD - Free Report) – has a dividend yield of 3.35% and 8.07% over the past year.
Vanguard High Dividend Yield Index ETF (VYM - Free Report) – has a dividend yield of 2.85% and 11.63% over the past year.
Consumer Staples ETFs
Consumer staples are essential products like food, beverages, household items, and hygiene products, including alcohol and tobacco. They are non-cyclical, with demand remaining consistent regardless of economic conditions.
Consumer Staples Select Sector SPDR Fund (XLP - Free Report) – has gained 6.12% over the past year and 6.20% over the past three months.
Vanguard Consumer Staples ETF (VDC - Free Report) – has gained 8.90% over the past year and 7.29% over the past three months.
iShares U.S. Consumer Staples ETF (IYK - Free Report) – has gained 3.99% over the past year and 3.52% over the past three months.