The latest Fed minutes reflected the increased confidence of policy makers in U.S. inflation and the need to raise rates faster in 2018, especially amid the materialization of tax cuts. This has driven the yield on 10-year U.S. Treasury bonds to 2.94%, which is a four-year high, and was up from 2.46% recorded at the start of the year (read: 7 Ways to Play Rising Yields With Inverse Treasury ETFs).
Yield on the 30-year Treasury bond shot up to its highest since July 2015, while yield on the two-year Treasury note scaled the highest level since September 2008. Many analysts, including Macquarie Group, foresee “renewed hawkishness from the FOMC in the coming months”, courtesy of solid wage and inflation data.
Needless to say, the minutes came across as equity-bashing with the three big ETFs including SPDR S&P 500 ETF (SPY - Free Report) , SPDR Dow Jones Industrial Average ETF (DIA - Free Report) and PowerShares QQQ ETF (QQQ - Free Report) ending up in the red. Fears of faster ceases in cheap money inflows kept the broader market under pressure post the release of the Fed minutes. In fact, the all-world fund iShares MSCI ACWI ETF (ACWI - Free Report) lost about 0.4% on Feb 22.
However, there are certain investing areas which held their heads high and even hit a 52-week high on the day. Below we highlight those areas.
Sizzling Tech Investing Areas
The technology sector has been in great shape. Emerging new technologies like cloud computing, big data and Internet of Things (IoT) are expected to drive the sector in the coming days. This kind of a cyclical sector often grows in an improving economy.
The latest Fed minutes displayed that both voting members and the other policymakers had upgraded forecasts for the economic outlook since last December.
Another reason to be bullish on the sector is increasing dividends and buybacks by tech companies. Per the Earnings Trends issued on Feb 14, the technology sector is expected to grow 22.6% on fourth-quarter 2017 earnings versus the projected growth of 13.9% for the S&P 500.
Earnings from the Computer Software – Services sector are expected to grow 33.5% in the fourth quarter of 2017, marking the third-highest growth rate among seven tech categories. PowerShares Dynamic Software ETF (PSJ - Free Report) , SPDR S&P Software & Services ETF (XSW - Free Report) and iShares North American Tech-Software ETF (IGV - Free Report) are expected to cash in on this winning trend.
Internet & Social Media
Internet and social media stocks are riding high on rising demand for online activities. Investors should also note that semiconductor companies play a major role in the IoT space. Now, the IoT chip market is projected to register “an annual growth rate of almost 16% over the next five years and hit $17 billion by 2022, according to Research and Markets.”
In fact, the Electronic – Semiconductors segment is expected to log about 68.1% earnings growth in the fourth quarter of 2017, per Earnings Trends. Global X Social Media ETF (SOCL - Free Report) ), First Trust Dow Jones Internet ETF (FDN - Free Report) and PowerShares NASDAQ Internet ETF (PNQI - Free Report) are some of the funds that should gain from the online hype (read: What Investors Need to Know about the Internet of Things ETF).
The fear of cyber-attacks is rising rapidly and so is the demand for cyber security. Be it the ransomware WannaCry or Petya, one or another cyber incident kept disrupting global stability in the last few months. Last September, Equifax, the credit reporting agency, revealed a huge data breach. Most recently, the Pyeongchang Winter Olympics faced a similar issue. Needless to say, demand for cyber security-related stocks are red hot for now (read: Cyber Security ETFs Scale New Highs on Robust Q4 Earnings).
ETFMG Prime Cyber Security ETF (HACK - Free Report) and First Trust NASDAQ Cybersecurity ETF (CIBR - Free Report) have thus successfully brushed off rising rate worries and remained steady.
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