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Consumer Discretionary ETFs to Buy as Fed Cuts Rates by 50 Bps
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On Sept. 18, 2024, the Fed announced a 50-basis-point cut in interest rates, marking its first reduction since March 2020. The new benchmark policy rate now stands between 4.75% and 5.00%, marking its lowest level since April 2023.
Looking ahead, the Fed’s dot-plot projects the federal funds rate to decline to 4.25-4.50% by the end of the year. Further cuts of one percentage point are expected in 2025, with a half-point reduction in 2026, bringing the rate down to a final 2.75-3%.
Decision to Boost Economy
The rate cut was widely anticipated, though there was uncertainty over its size. A 25-basis-point reduction was expected by many, but softer-than-expected economic data led to calls for a larger cut. Ultimately, the Fed opted for the half-percentage-point reduction.
In a press release, the Federal Open Market Committee expressed optimism about inflation by stating, "The committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance."
Economic Growth Outlook
Despite the rate cuts, the U.S. economy remains robust. U.S. GDP expanded 3% in the second quarter of 2024 from slower growth of 1.4% in the first quarter. Additionally, the Atlanta Fed raised its third-quarter GDP growth estimate to 3% from the previously mentioned 2.5%. Despite the recent move to ease, the unemployment rate remains low at 4.2%, though job gains have slowed.
Positive Impacts on Consumer Discretionary Stocks
Consumer discretionary stocks are expected to benefit from the rate cut. The new rate will impact various consumer financial products, such as mortgages, auto loans and credit cards. Consumer stocks tend to perform well in lower interest rate environments (read: Fed Cuts Rates by 50 Basis Points: Sector ETFs to Play).
Consumer Discretionary ETFs in Focus
The Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) gained 2.3% on Sept. 19, 2024. The ETF XLY added 0.1% after hours. VanEck Retail ETF (RTH - Free Report) advanced 0.8% on Sept. 19, 2024. Vanguard Consumer Discretionary Index Fund ETF Shares (VCR - Free Report) advanced 2.3% on the day, while the ETF gained 0.1% after hours. Vanguard Consumer Discretionary Index Fund ETF Shares (VCR - Free Report) gained 2.2% on Sept. 19, 2024, and advanced 0.4% after hours. SPDR S&P Retail ETF (XRT - Free Report) advanced 1.2% on the day.
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Consumer Discretionary ETFs to Buy as Fed Cuts Rates by 50 Bps
On Sept. 18, 2024, the Fed announced a 50-basis-point cut in interest rates, marking its first reduction since March 2020. The new benchmark policy rate now stands between 4.75% and 5.00%, marking its lowest level since April 2023.
Looking ahead, the Fed’s dot-plot projects the federal funds rate to decline to 4.25-4.50% by the end of the year. Further cuts of one percentage point are expected in 2025, with a half-point reduction in 2026, bringing the rate down to a final 2.75-3%.
Decision to Boost Economy
The rate cut was widely anticipated, though there was uncertainty over its size. A 25-basis-point reduction was expected by many, but softer-than-expected economic data led to calls for a larger cut. Ultimately, the Fed opted for the half-percentage-point reduction.
In a press release, the Federal Open Market Committee expressed optimism about inflation by stating, "The committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance."
Economic Growth Outlook
Despite the rate cuts, the U.S. economy remains robust. U.S. GDP expanded 3% in the second quarter of 2024 from slower growth of 1.4% in the first quarter. Additionally, the Atlanta Fed raised its third-quarter GDP growth estimate to 3% from the previously mentioned 2.5%. Despite the recent move to ease, the unemployment rate remains low at 4.2%, though job gains have slowed.
Positive Impacts on Consumer Discretionary Stocks
Consumer discretionary stocks are expected to benefit from the rate cut. The new rate will impact various consumer financial products, such as mortgages, auto loans and credit cards. Consumer stocks tend to perform well in lower interest rate environments (read: Fed Cuts Rates by 50 Basis Points: Sector ETFs to Play).
Consumer Discretionary ETFs in Focus
The Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) gained 2.3% on Sept. 19, 2024. The ETF XLY added 0.1% after hours. VanEck Retail ETF (RTH - Free Report) advanced 0.8% on Sept. 19, 2024. Vanguard Consumer Discretionary Index Fund ETF Shares (VCR - Free Report) advanced 2.3% on the day, while the ETF gained 0.1% after hours. Vanguard Consumer Discretionary Index Fund ETF Shares (VCR - Free Report) gained 2.2% on Sept. 19, 2024, and advanced 0.4% after hours. SPDR S&P Retail ETF (XRT - Free Report) advanced 1.2% on the day.