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Trump Urges for Lower Interest Rates: Sector ETFs to Benefit
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President Donald Trump, in a video address to the World Economic Forum in Davos, Switzerland, supported lower interest rates. Although he did not directly name the Federal Reserve, Trump signaled his intention to put pressure on the central bank to adopt a more accommodative monetary policy.
Renewed Criticism of Federal Reserve
Trump’s remarks and comments reignited tensions among Federal Reserve officials. Trump also hinted at direct engagement, telling reporters later that he plans to speak with the Fed Chair Powell “at the right time.”
Fed officials, including Chair Powell, have repeatedly emphasized the importance of maintaining the central bank's independence. Powell has asserted that the Fed’s decisions are based on economic data rather than political considerations.
Although the President nominates members to the Fed’s board of governors, he lacks direct statutory authority over its decisions. Historically, the Fed's autonomy has been viewed as crucial for ensuring market stability.
Current Monetary Policy Outlook
Traders anticipate the first potential rate reduction in June, with a possible second cut by year’s end, according to CME Group data. These expectations follow a full percentage point of cuts in late 2024, after a previous tightening cycle aimed at combating inflation.
Trump criticized the inflation surge that began under his predecessor, former President Joe Biden, attributing it to inefficient deficit spending. Despite inflation remaining above the central bank’s 2% target, Fed officials have noted a moderation in price increases, suggesting monetary policy no longer needs to be as restrictive.
Sector ETFs in Focus
Below, we highlight a few sector-based exchange-traded funds (ETFs) that are likely to gain from hopes of deeper rate cuts ahead.
More meaningful rate cuts could stimulate stock growth, especially in regional bank stocks, since experts believe the banking crisis was triggered by a sharp increase in interest rates over the past year. Plus, the Fed rate cuts will likely steepen the yield curve, which is another positive for the space.
Real Estate – Vanguard Real Estate ETF (VNQ - Free Report)
The space couldn’t do well lately. However, with rates likely to dive ahead, real estate stocks, which thrive in a low-rate environment, are likely to excel. The fund VNQ even yields 3.79% annually. This is a plus for investors.
Utility companies often are debt-dependent due to their significant infrastructure investments. Lower interest rates reduce the cost of servicing this debt, improving profitability. Moreover, utilities are generally seen as stable, income-generating investments, making them attractive in a low-rate environment.
The areas of blockchain, digital technology and data sharing have surged lately due to the space’s inherent strength and a less-hawkish Fed. With the Fed likely to be more benevolent in 2025 and the strength of data sharing and AI space remaining intact, digital tech ETFs should continue to do well in 2025.
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Trump Urges for Lower Interest Rates: Sector ETFs to Benefit
President Donald Trump, in a video address to the World Economic Forum in Davos, Switzerland, supported lower interest rates. Although he did not directly name the Federal Reserve, Trump signaled his intention to put pressure on the central bank to adopt a more accommodative monetary policy.
Renewed Criticism of Federal Reserve
Trump’s remarks and comments reignited tensions among Federal Reserve officials. Trump also hinted at direct engagement, telling reporters later that he plans to speak with the Fed Chair Powell “at the right time.”
Fed officials, including Chair Powell, have repeatedly emphasized the importance of maintaining the central bank's independence. Powell has asserted that the Fed’s decisions are based on economic data rather than political considerations.
Although the President nominates members to the Fed’s board of governors, he lacks direct statutory authority over its decisions. Historically, the Fed's autonomy has been viewed as crucial for ensuring market stability.
Current Monetary Policy Outlook
Traders anticipate the first potential rate reduction in June, with a possible second cut by year’s end, according to CME Group data. These expectations follow a full percentage point of cuts in late 2024, after a previous tightening cycle aimed at combating inflation.
Trump criticized the inflation surge that began under his predecessor, former President Joe Biden, attributing it to inefficient deficit spending. Despite inflation remaining above the central bank’s 2% target, Fed officials have noted a moderation in price increases, suggesting monetary policy no longer needs to be as restrictive.
Sector ETFs in Focus
Below, we highlight a few sector-based exchange-traded funds (ETFs) that are likely to gain from hopes of deeper rate cuts ahead.
Regional Banks – SPDR S&P Regional Banking ETF (KRE - Free Report)
More meaningful rate cuts could stimulate stock growth, especially in regional bank stocks, since experts believe the banking crisis was triggered by a sharp increase in interest rates over the past year. Plus, the Fed rate cuts will likely steepen the yield curve, which is another positive for the space.
Real Estate – Vanguard Real Estate ETF (VNQ - Free Report)
The space couldn’t do well lately. However, with rates likely to dive ahead, real estate stocks, which thrive in a low-rate environment, are likely to excel. The fund VNQ even yields 3.79% annually. This is a plus for investors.
Utilities – Utilities ETF Vanguard (VPU - Free Report)
Utility companies often are debt-dependent due to their significant infrastructure investments. Lower interest rates reduce the cost of servicing this debt, improving profitability. Moreover, utilities are generally seen as stable, income-generating investments, making them attractive in a low-rate environment.
Technology – Transformational Data Sharing Amplify ETF (BLOK - Free Report)
The areas of blockchain, digital technology and data sharing have surged lately due to the space’s inherent strength and a less-hawkish Fed. With the Fed likely to be more benevolent in 2025 and the strength of data sharing and AI space remaining intact, digital tech ETFs should continue to do well in 2025.