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Top ETF Stories of Q1 of 2024

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The S&P 500 just closed out best first quarter since 2019. The S&P 500 has added more than 10% return in the first quarter of this year while the Dow Jones is up 5.6% and the Nasdaq has gained 9.4%.  All three major U.S. indexes have now risen for five straight months. The small-cap index Russell 2000 has nudged up 4.8% in Q1.

Wall Street firms have been trying hard to keep up with the relentless surge of the S&P, which prompting them to continuously raise their year-end price targets. This rally, initially led by mega-cap stocks, is now displaying signs of broadening. And, historical patterns indicate that this momentum might persist.

Let’s delve deeper into the top ETF stories of the first quarter of 2024.

Upbeat GDP Data for Q4 of 2023

The latest report on fourth quarter GDP for the year 2023, released Thursday morning, revealed that the US economy expanded at a 3.4% rate, up from the previous estimate of 3.2%. In terms of employment, initial jobless claims for the last week stood at 210,000, slightly below the estimated 212,000.

Such upbeat GDP data point indicates more activities in the economy, which should favor sectors like industrials and transportations. ETFs including Industrial Select Sector SPDR ETF (XLI - Free Report) and iShares US Transportation ETF (IYT - Free Report) have added 11.6% and 9% in Q1.

Plus, an improving U.S. economy is always favorable for small-cap U.S. stocks as pint-sized stocks are more closely-tied to the domestic economy. iShares Russell 2000 ETF (IWM - Free Report) , although is up a modest 5.4% in Q1, most of gains came from in the past one month. In fact, the fund, which is up 3.2% last month, is set for more gains, going forward.

Dovish Fed Meeting

In March, the Federal Reserve decided to keep interest rates unchanged, maintaining the benchmark rate in the range of 5.25-5.50%. No officials see rates going up in 2024. In fact, despite previous expectations of a lesser number of rate cuts due to recently-released hot inflation numbers, the Fed still anticipates the need for three rate cuts in 2024.

The decision to maintain the forecast for three rate cuts in 2024 comes amid concerns over persistently high inflation despite recent data suggesting a slight easing. As a result, growth stocks that perform well in a low-rate environment surged. iShares Russell Top 200 Growth Index Fund (IWY - Free Report) is up 13% this year (read: Growth ETFs to Play as Fed Sticks to 3 Rate Cuts Projections).

Inflation Still Remains Hot

U.S. inflation, though showing signs of moderation, remains elevated, with core consumer prices still significantly above the 2% target. The Fed's preferred inflation gauge, however, indicates some progress in containing inflationary pressures.

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 monthly gain was in line with expectations, but the annual rate was slightly ahead of the 3.1% forecast from the Dow Jones consensus. No wonder, Amplify Inflation Fighter ETF (IWIN - Free Report) has added about 7% this year (read: ETF Strategies to Play Hot inflation Data).

Japan Ends Negative Rate Era

In Mid-March, BoJ (Bank of Japan) hiked its short-term interest rates to around 0% to 0.1% from -0.1%. It marked the first rate-hike in 17 years, putting an end to the world’s only negative rates regime on signs of robust wage gains this year. Japan’s negative rates regime had been in place since 2016.

BoJ also abandoned yield-curve control policy, though it pledged to continue its purchases of Japanese government bonds with “broadly the same amount” as before — currently about 6 trillion yen per month. It would resort to “nimble responses” in the form of increased JGB purchases and fixed-rate purchases of JGBs, among other things, if there is any sharp rise in long-term interest rates.

BOJ will now stop purchases of ETFs and Japan’s REITs. The bank also vowed to slowly reduce its purchases of commercial paper and corporate bonds, with the goal to stop this practice in about a year.

If rates rise, value ETFs fare better than growth stocks. Probably, this is why iShares MSCI Japan Value ETF (EWJV - Free Report) gained 4.9% past month. The fund is up 14.7% in Q1 (read: BoJ Ends Negative Rate Era: ETFs to Win).

Rally in Bitcoin Due to ETF Launches

The Q1 of 2024 would always be remembered in the history of bitcoin as the SEC approved the launches of several bitcoin ETFs in January. The arrival of spot bitcoin ETFs has helped the cryptocurrency reach levels not seen since late 2021. Bitcoin touched as high as $72K this year.

Huge institutional interest in the cryptocurrency field has boosted the credibility and durability of it and the biggest cryptocurrency rallied this year. As a result, the biggest bitcoin ETF in the field – Grayscale Bitcoin Trust (GBTC - Free Report) – has amassed about $23.6 billion having hit the market on Jan 11, this year. The fund is up 76.8% so far this year.

Marijuana On a High

The rescheduling of cannabis has almost become a centrality.  In a White House meeting, Vice President Kamala Harris recently urged the DEA to expedite the rescheduling of marijuana, criticizing its current Schedule 1 classification as "absurd" and "patently unfair."

Notably, the presidential election is looming this year. President Biden has already canceled $5.8 billion in student debt for public service workers. Amidst such developments, Democrats' another agenda – the legalization of marijuana or cannabis – will now likely gain steam, according to market watchers (read: Is Rescheduling a Certainty for Cannabis? ETFs That Surge).

As a result, Roundhill Cannabis ETF (WEED - Free Report) has added 47.5% so far this year (as of Mar 28, 2024), followed by AdvisorShares Pure US Cannabis ETF (MSOS - Free Report) which is up 45.2%.

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