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On September 18, 2024
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10 ETFs Investors Secretly Bought Before The Fed's Make-Or-Break Interest Rate Call - iShares MSCI EAFE Value ETF (BATS:EFV), SPDR Gold Trust (ARCA:GLD)
Analysts expect rate cuts to continue into 2024 and 2025, prompting investors to adjust portfolios ahead of this monetary policy shift. The Federal Reserve is widely anticipated to cut interest rates at its upcoming Federal Open Market Committee meeting, with the decision set for release on Wednesday at 2 p.m. ET. The central bank has maintained the federal funds rate at 5.25%-5.5% since September 2023 and this week's rate reduction would be the first since March 2020, signaling a marked shift from the restrictive monetary policy stance implemented to combat soaring inflation. Rate Cut Expectations: Will The Fed Opt For 25 Or 50 Basis Points? The key question on everyone's mind is the magnitude of the rate cut. Will the Fed opt for a cautious 25-basis-point reduction, or will it make a bolder move with a 50-basis-point cut, as seen at the start of previous rate-cutting cycles? Market sentiment currently differs from Wall Street economist consensus. Traders are pricing in a 63% probability of a 50-basis-point cut, as per the CME FedWatch tool. Among Wall Street analysts, instead, there is an overwhelming consensus on a more conservative 25-basis-point reduction, but JPMorgan Chase & Co. stands out as the notable exception, forecasting a 50-basis-point cut. According to the biggest U.S. bank, interest rates are about 150 basis points above neutral levels. Therefore, a 25-basis-point cut per meeting would take almost a year to align the policy back to a neutral stance. This strengthens the case for frontloading rate cuts at the start of the cycle, particularly given that, in hindsight, a July commencement might have been more appropriate. Regardless of whether the Fed chooses a 25 or 50-basis-point reduction, analysts expect a series of cuts to continue through 2024 and 2025. Investor Moves Ahead of the Rate Cut: Top 10 ETFs Investors Bought Last Week In the week leading up to this highly anticipated rate cut, investors reshuffled their portfolios, resulting in significant inflows into various exchange-traded funds (ETFs) that may indicate a strategic tilt toward assets poised to benefit from a lower interest rate environment. To identify these trends, Benzinga analyzed data from VettaFi's etfdb.com, and found that investors displayed a strong preference for value-oriented ETFs. Notable among these were the iShares MSCI EAFE Value ETF EFV and SPDR Portfolio S&P 500 Value ETF SPYV, signaling a tilt towards assets that may offer stability and a defensive hedge as the macro regime shifts. As a traditional beneficiary of lower interest rates, gold has also been on investors' radar, with prices repeatedly hitting record highs over the last week, supported by strong inflows into the SPDR Gold Shares GLD. Also worth noting is the interest in the tech sector, particularly semiconductors, with the VanEck Semiconductor ETF SMH seeing substantial inflows. Additionally, investors pursued speculative and leveraged strategies on the Nasdaq 100, likely interpreted as a bet to the rising chance of a larger 50-basis-point cut. Investors bought into both ProShares Ultra QQQ QLD, which aims to deliver twice the daily performance of the Nasdaq 100, and the ProShares UltraPro QQQ TQQQ, which targets three times the daily performance of the index. Rounding out the list, the popular small-cap fund iShares Russell 2000 ETF IWM attracted over half a billion dollars in inflows last week, signaling investors' growing interest in smaller, domestically-focused companies as they are poised to benefit from declining borrowing costs. Read now: 13 ETFs To Own As Fed Set To Cut Rates: Analysts Highlight Utilities, Real Estate, And More Image created using artificial intelligence via Midjourney. Market News and Data brought to you by Benzinga APIs
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13 ETFs To Own As Fed Set To Cut Rates: Analysts Highlight Utilities, Real Estate, And More - Pacer US Cash Cows 100 ETF (BATS:COWZ), Costco Wholesale (NASDAQ:COST)
Sectors like utilities, real estate, and consumer staples are attractive for defensive plays, with recommended ETFs providing exposure. As the Federal Reserve transitions from a restrictive monetary policy to a more accommodative stance, investors are questioning how this regime change will impact various asset classes. The central bank's shift towards lower interest rates can have far-reaching implications across equities, bonds, and other markets. Historically, stocks have tended to perform well following the Fed's initial rate cuts -- but with a crucial caveat: the economy must avoid slipping into a recession. An analysis by Goldman Sachs reveals that the S&P 500 has experienced significant declines even after rate cuts if the U.S. economy entered a recession during those periods. When it comes to bonds, lower interest rates have generally led to a decrease in bond yields, thus driving up bond prices. Unlike equities, this dynamic has historically played out somewhat independently of the economic cycle. However, "what's past is prologue" is not always a guarantee in financial markets. 'Quality Can Be Found Across Asset Classes' According to Bank of America's latest Research Investment Committee (RIC) report, investors can identify quality opportunities across various asset classes, particularly in today's shifting market landscape. BofA analysts suggest that in the U.S. equity space, investors should adopt a defensive stance, focusing on companies with high free cash flow. Savita Subramanian, head of U.S. equity & quantitative strategy at BofA, notes that S&P 500 valuations indicate low price returns for the next decade, making dividend payouts more crucial for total returns. Utilities: Recently upgraded to Overweight by BofA, the utilities sector stands out for its defensive characteristics and competitive yield. Subramanian indicates that growing power demand driven by AI-linked data centers bolsters the outlook for utility companies. ETFs like the First Trust Utilities AlphaDEX ETF FXU and the Utilities Select Sector SPDR Fund XLU are potential plays in this space. Real Estate: Offering higher quality yield than before, with 70% of the sector rated B+ or better, the real estate sector provides attractive options. BofA notes that the S&P 500 real estate segment has relatively low office exposure, which could mitigate some risks. Recommended ETFs include the Real Estate Select Sector SPDR Fund XLRE and iShares Cohen & Steers REIT ETF ICF. Consumer Staples: BofA finds the consumer staples sector tactically attractive, especially ETFs like the Consumer Staples Select Sector SPDR ETF XLP, which has substantial exposure to resilient companies like The Procter & Gamble Co. PG, Costco Wholesale Corp. COST, Walmart Inc. WMT. Another sector play here is the iShares U.S. Consumer Staples ETF IYK. Value, Quality, Dividends, and Buybacks: The bank is also bullish on factor-based ETFs, recommending exposure in value, quality, dividend, and buyback amid a strong free cash flow yield and potential for higher payouts than the broader S&P 500 index. ETFs in this category include the Vanguard Value ETF VTV, Pacer US Cash Cows 100 ETF COWZ, Schwab US Dividend Equity ETF SCHD, and iShares Core Dividend ETF DIVB. Outside the U.S., Bank of America is bullish on Japanese equities as effective corporate reforms are expected "to unleash a mountain of cash." The WisdomTree Japan Hedged Equity ETF DXJ is a top pick in this market, having gained 125% since 2019. This ETF also offers protection against the yen's devaluation. In the fixed-income market, BofA suggests exposure to AAA-rated collateralized loan obligations (CLOs) and long-dated Treasury bonds. CLOs: BofA recommends the Janus Henderson AAA CLO ETF JAAA, viewing these loans as quality yield options that have withstood stress during both the 2008 financial crisis and the 2020 pandemic-induced downturn. Long-Dated Treasuries: Investors looking for duration exposure can consider the iShares 20+ Year Treasury Bond ETF TLT, which tracks long-dated Treasury bonds with a 17-year duration. Read Next: Long-Dated Treasury Bond ETF Hits 14-Month Highs Ahead Of Imminent Fed Rate Cut Image created using artificial intelligence via Midjourney. Market News and Data brought to you by Benzinga APIs
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As the Federal Reserve prepares for a pivotal interest rate decision, investors are strategically positioning themselves through various ETFs. This article explores the top ETF choices and their potential implications in the current economic climate.
As the Federal Reserve gears up for a critical interest rate decision, investors are making strategic moves in the ETF market. Recent data reveals a significant shift in investor sentiment, with certain ETFs experiencing notable inflows in anticipation of potential rate cuts 1.
Several ETFs have emerged as favorites among investors seeking to capitalize on the expected economic shifts. The iShares 20+ Year Treasury Bond ETF (TLT) and the Invesco QQQ Trust (QQQ) have seen substantial inflows, indicating a growing interest in both long-term government bonds and large-cap technology stocks [1].
Other popular choices include the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), suggesting that investors are also eyeing corporate debt markets [1].
Analysts are recommending sector-specific ETFs as potential beneficiaries of anticipated rate cuts. Utilities and real estate sectors, traditionally sensitive to interest rate changes, are garnering attention. The Utilities Select Sector SPDR Fund (XLU) and the Real Estate Select Sector SPDR Fund (XLRE) are among the highlighted options for investors looking to position themselves ahead of potential rate reductions 2.
Investors are not limiting themselves to U.S. markets. The iShares Core S&P 500 ETF (IVV) has seen significant inflows, indicating continued faith in the broader U.S. stock market. Additionally, the iShares MSCI Emerging Markets ETF (EEM) has attracted investor attention, suggesting a growing interest in diversifying portfolios with international exposure [1].
As the interest rate landscape potentially shifts, fixed income ETFs are gaining traction. The iShares Core U.S. Aggregate Bond ETF (AGG) has emerged as a popular choice for investors seeking broad exposure to the U.S. bond market [1].
In the commodities sector, the SPDR Gold Trust (GLD) has seen increased interest, potentially as a hedge against economic uncertainty or inflation concerns [1].
The influx of capital into these diverse ETFs reflects a complex market sentiment. Investors appear to be preparing for various economic scenarios, balancing between defensive positions in bonds and utilities, and growth opportunities in technology and emerging markets.
As the Federal Reserve's decision looms, these ETF movements provide valuable insights into investor expectations and market dynamics. The coming weeks may see further shifts in ETF allocations as investors continue to adjust their strategies in response to economic indicators and policy decisions.
Reference
The Russell 2000 index outperforms the S&P 500 as small-cap stocks gain momentum. Investors eye potential opportunities in financial and real estate sectors ahead of expected Federal Reserve interest rate cuts.
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The Federal Reserve faces a critical decision on interest rates, with markets and analysts anticipating a potential cut. This move could mark a significant shift in monetary policy, impacting various sectors of the economy.
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As the Federal Reserve signals potential interest rate cuts, investors are expanding their focus beyond Big Tech stocks. This shift is driving interest in small-cap stocks and previously underperforming sectors, reshaping market dynamics.
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Recent economic data revisions and Federal Reserve minutes have led to significant market movements, affecting everything from interest rate expectations to cryptocurrency and gold prices.
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Federal Reserve Chairman Jerome Powell's recent comments hint at possible interest rate cuts, causing significant movements in various financial markets. The U.S. dollar weakens while gold, cryptocurrencies, and small-cap stocks see notable gains.
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