Investors can rejoice on Federal Reserve Chairman Jerome Powell’s indication about the interest rate cuts should the need be. They are forecasting a quarter-point slash in interest rates after a stronger jobs report curbed projections for a rate cut by 50 basis points. Notably, the Fed’s benchmark rate presently stands between 2.25% and 2.5%.
What Drove the Rate Cut?
Slowdown in global economic growth, lower factory activity, inflation below U.S. central bank’s 2% annual target and instability surrounding the trade tension between the United States and China are the prime reasons behind Fed’s inclination for a rate cut for the first time in a decade. As a matter of fact, factory activity has also been decelerating in Europe and Asia, compelling the central banks across the globe to roll out more incentives.
In this regard, Powell said that since the last Fed meeting, “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.” The step is expected to boost investors’ confidence, who might be under an impression that the Fed might consider cutting interest rates if the global economy further weakens.
ETFs to Consider
If the Fed lowers interest rates, investors should grab some ETFs in order to gain from the future trend. Here are some funds that could prove enormously beneficial to ETF investors in the coming months:
Asian markets have been on a rally since the Fed’s announcement about its intent to reduce the interest rates. In this regard, Stephen Innes of Vanguard Markets said, “local equity markets are reveling in the best of both worlds this morning as local investors love nothing more than lower U.S. interest rates and a weaker U.S. dollar.” Accordingly, Japan’s NIKKEI 225 Index rose 0.51%, Hong Kong’s Hang Seng Index inched up 0.74% (as of Jul 11 at 3:13 pm HKST) and Shanghai Composite Index climbed 0.08%. Indices in South Korea, Taiwan, Australia and Southeast Asia also moved up.
While there are several options in this space, the most popular are Vanguard FTSE Pacific ETF (VPL - Free Report) , Schwab Fundamental International Large Company Index ETF FNDF and JPMorgan Diversified Return International Equity ETF JPIN.
Dovish Fed view and global growth downturn concerns are two major positive factors, which having been driving an uptick in the funds weighted heavily on the yellow metal. The latest development is going to boost this upside further. SPDR Gold Trust (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) and Invesco DB Gold Fund (DGL - Free Report) are some popular funds in this space.
Dovish comments from the Fed officials have led to a dip in mortgage rates, which is providing support to the real estate sector. Rate cut usually results in decreased mortgage rates, which makes it cheaper for consumers to buy homes and bump up home sales. Investors can snap up some popular ETFs like SPDR S&P Homebuilders ETF XHB, Invesco Dynamic Building & Construction ETF (PKB - Free Report) andiShares U.S. Home Construction ETF (ITB - Free Report) to make the most of this opportunity.
The falling rates will facilitate investors’ drive for higher yields, thus raising the craze for dividend investing. While there are several dividend ETFs, picking up the top-ranked high-yielding products seems a good choice. Some of these are Vanguard High Dividend Yield ETF (VYM - Free Report) , iShares Core High Dividend ETF (HDV - Free Report) andSPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report) .
Growth investing is basically a momentum play, which makes for a great strategy in a trending market. Growth funds generally comprise stocks with higher price-to-book ratios and estimated growth than other stocks. Powell’s testimony has led to stock markets rallying to an all-time high. The S&P 500 also crossed the 3000 mark for some time. Investors can opt for iShares S&P 500 Growth ETF (IVW), Schwab U.S. Large-Cap Growth ETF (SCHG - Free Report) , iShares Core S&P U.S. Growth ETF (IUSG - Free Report) andSPDR Portfolio S&P 500 Growth ETF (SPYG - Free Report) to benefit from the bountiful opportunities in the market.
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