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5 ETFs to Benefit From Cooling Inflation in the Near Term
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Key Takeaways
Cooling inflation is reducing the odds of a September Fed rate hike.
Growth and emerging-market ETFs could benefit from softer rate expectations.
South Korea, Asia and gold ETFs offer additional ways to play the trend.
The annual inflation rate in the United States slowed for a second successive month to 3.4% in July 2026, from 3.5% in June, in line with expectations. The impact of the energy shock caused by the war with Iran continued to ease. On a monthly basis, the CPI rose 0.1% as expected, rebounding from a 0.4% decline in June.
More importantly, core CPI, which excludes volatile food and energy prices, increased 0.2% month over month (following a flat reading in June) and 2.5% year over year, down from 2.6% in June, per Trading Economics.
Cooling Inflation Cools Fed Rate-Hike Bets
Expectations for another Federal Reserve rate hike have cooled following the latest inflation data. The chances of the Fed keeping interest rates unchanged at its September meeting have now risen to 66%, up from 45% a week ago, per CME FedWatchTool (at the time of writing).
The benign inflation report came shortly after July's disappointing jobs data, which showed an unexpected loss of 23,000 nonfarm jobs. The combination of softer inflation and a weakening labor market have reduced the urgency for the Fed to raise interest rates at its September meeting, although another rate hike later this year remains possible if inflation proves persistent.
ETF Areas to Play
Against this backdrop, below we highlight a few exchange-traded fund (ETF) areas that could gain in the near term.
State Street Technology Select Sector SPDR ETF (XLK - Free Report) – Up 1.5% on Aug. 12, 2026
The latest developments are particularly positive for growth-oriented investments. A reduced risk of further rate hikes can ease pressure on Treasury yields and improve the valuation outlook for companies whose earnings are expected to grow rapidly in the future. This could provide a tailwind for growth-focused ETFs, particularly technology, semiconductor and AI-themed funds.
The fund has added 30.9% so far this year.
iShares MSCI Emerging Markets ETF (EEM - Free Report) – Up 1.57% on Aug. 12, 2026
Emerging market (EM) ETFs like EEM could outperform from here because the macro environment is becoming more supportive for the EM space. If cooling U.S. inflation reduces the need for further Fed tightening, the dollar could lose some of its yield advantage. This is important for emerging markets because a weaker dollar generally improves financial conditions, supports EM currencies and makes dollar-denominated debt easier to service.
As expectations for Fed rate hikes cool, investors may become more willing to move money into higher-growth, higher-yielding and relatively cheaper overseas markets.
The fund EEM has gained 18% so far this year.
iShares MSCI South Korea ETF (EWY - Free Report) – Up 4.87% on Aug. 12, 2026
South Korean stocks have rebounded recently, putting the benchmark index on track to enter a technical bull market, as the revival of the AI trade sparked a sharp recovery from last month’s historic rout, per Bloomberg, as quoted on Yahoo Finance.
Heavyweight memory chipmakers Samsung Electronics Co. and SK Hynix Inc. spearheaded the rally. According to Bloomberg, Korean stocks rose 22% in 10 days. The fund EWY has surged 72.1% so far this year.
iShares Asia 50 ETF (AIA - Free Report) – Up 1.8% on Aug. 12, 2026
Asian stocks rose on Thursday after U.S. inflation data came in as expected, while oil held near $80 a barrel as Washington and Tehran remained deadlocked over efforts to end the Gulf war. Gains in South Korea and Japan remained notable. The fund has advanced 36% year to date.
SPDR Gold Trust (GLD - Free Report) – Up 1.0% on Aug. 12, 2026
Gold prices continued their upward momentum from last week, with GLD adding about 7.7%. Since the weak jobs data came in, Fed rate hike bets have begun to cool. A dovish Fed should weaken the greenback and push down Treasury yields, which is a plus for gold investing (read: Best-Performing ETF Areas of Last Week).
Any Wall of Worry?
However, inflation remains above the Fed's 2% target, while energy prices are still elevated on a year-over-year basis. Therefore, investors should not assume that rate hikes are completely off the table. The Fed will receive another round of inflation and employment data before its September meeting.
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5 ETFs to Benefit From Cooling Inflation in the Near Term
Key Takeaways
The annual inflation rate in the United States slowed for a second successive month to 3.4% in July 2026, from 3.5% in June, in line with expectations. The impact of the energy shock caused by the war with Iran continued to ease. On a monthly basis, the CPI rose 0.1% as expected, rebounding from a 0.4% decline in June.
More importantly, core CPI, which excludes volatile food and energy prices, increased 0.2% month over month (following a flat reading in June) and 2.5% year over year, down from 2.6% in June, per Trading Economics.
Cooling Inflation Cools Fed Rate-Hike Bets
Expectations for another Federal Reserve rate hike have cooled following the latest inflation data. The chances of the Fed keeping interest rates unchanged at its September meeting have now risen to 66%, up from 45% a week ago, per CME FedWatchTool (at the time of writing).
The benign inflation report came shortly after July's disappointing jobs data, which showed an unexpected loss of 23,000 nonfarm jobs. The combination of softer inflation and a weakening labor market have reduced the urgency for the Fed to raise interest rates at its September meeting, although another rate hike later this year remains possible if inflation proves persistent.
ETF Areas to Play
Against this backdrop, below we highlight a few exchange-traded fund (ETF) areas that could gain in the near term.
State Street Technology Select Sector SPDR ETF (XLK - Free Report) – Up 1.5% on Aug. 12, 2026
The latest developments are particularly positive for growth-oriented investments. A reduced risk of further rate hikes can ease pressure on Treasury yields and improve the valuation outlook for companies whose earnings are expected to grow rapidly in the future. This could provide a tailwind for growth-focused ETFs, particularly technology, semiconductor and AI-themed funds.
The fund has added 30.9% so far this year.
iShares MSCI Emerging Markets ETF (EEM - Free Report) – Up 1.57% on Aug. 12, 2026
Emerging market (EM) ETFs like EEM could outperform from here because the macro environment is becoming more supportive for the EM space. If cooling U.S. inflation reduces the need for further Fed tightening, the dollar could lose some of its yield advantage. This is important for emerging markets because a weaker dollar generally improves financial conditions, supports EM currencies and makes dollar-denominated debt easier to service.
As expectations for Fed rate hikes cool, investors may become more willing to move money into higher-growth, higher-yielding and relatively cheaper overseas markets.
The fund EEM has gained 18% so far this year.
iShares MSCI South Korea ETF (EWY - Free Report) – Up 4.87% on Aug. 12, 2026
South Korean stocks have rebounded recently, putting the benchmark index on track to enter a technical bull market, as the revival of the AI trade sparked a sharp recovery from last month’s historic rout, per Bloomberg, as quoted on Yahoo Finance.
Heavyweight memory chipmakers Samsung Electronics Co. and SK Hynix Inc. spearheaded the rally. According to Bloomberg, Korean stocks rose 22% in 10 days. The fund EWY has surged 72.1% so far this year.
iShares Asia 50 ETF (AIA - Free Report) – Up 1.8% on Aug. 12, 2026
Asian stocks rose on Thursday after U.S. inflation data came in as expected, while oil held near $80 a barrel as Washington and Tehran remained deadlocked over efforts to end the Gulf war. Gains in South Korea and Japan remained notable. The fund has advanced 36% year to date.
SPDR Gold Trust (GLD - Free Report) – Up 1.0% on Aug. 12, 2026
Gold prices continued their upward momentum from last week, with GLD adding about 7.7%. Since the weak jobs data came in, Fed rate hike bets have begun to cool. A dovish Fed should weaken the greenback and push down Treasury yields, which is a plus for gold investing (read: Best-Performing ETF Areas of Last Week).
Any Wall of Worry?
However, inflation remains above the Fed's 2% target, while energy prices are still elevated on a year-over-year basis. Therefore, investors should not assume that rate hikes are completely off the table. The Fed will receive another round of inflation and employment data before its September meeting.