ETFs
Buy 5 Growth ETFs as Fed Stays Put and Considers Rate Cut – June 13, 2024
The Fed chose to maintain its benchmark interest rate in a range of 5.25% to 5.50%, a level it has maintained since July 2023, and revised its rate cut forecast. While previously forecasting three rate cuts for the year, the Fed reduced its estimate to just one due to persistent inflation.
However, there was a division among officials, with eight estimating two reductions, seven predicting one and four predicting no reduction for the year. Despite reduced rate cut expectations for 2024, Fed officials increased their collective forecasts for 2025, anticipating a median of four additional rate cuts.
Inflation outlook
The Fed revised its inflation forecast for 2024, expecting prices to end the year at 2.8%, up from a previous estimate of 2.6%. The Fed has stressed the importance of returning inflation to the 2% target before considering rate cuts.
Is there any optimism?
The Fed’s policy statement reflects new optimism, noting “further modest progress” toward the inflation goal, a change from previous statements. Fed Chairman Powell acknowledged the risks of waiting too long or acting too soon when it comes to rate cuts.
Annual inflation in the United States notably slowed to 3.3% in May 2024, the lowest in three months compared to 3.4% in April and forecasts of 3.4%. The core CPI reached 3.4%, falling below the expected 3.5%. This is the lowest rate since April 2021.
Possibility of rate cut in September
The odds of a September rate cut have increased following the release of the CPI report, but the decision depends on continued improvement in inflation data. There is currently a 55% chance of a 25 basis point rate cut in September, up from 46.8% recorded on June 11, 2024, according to the CME FedWatch tool. The Fed maintained its unemployment and GDP outlook for the year while raising its neutral rate forecast.
Growth ETFs to play
Higher chances of a Fed rate cut in September and holding the rate at the last meeting bode well for growth investing as the segment tends to perform well in a rate environment down. However, we have highlighted low P/E growth ETFs that remain cheap in terms of valuation as the investment environment remains tight due to persistent inflation, occasional overvaluation concerns and the presidential election scheduled for this year.
Focus on ETFs
Invesco Bloomberg Pricing Power ETF (POWA quick quotePATA – Free report) – Zacks Rank #2 (Buy); P/E: 18.28X
The underlying Bloomberg Pricing Power Index is comprised of large- and mid-cap U.S. companies that are well-positioned to maintain stable profit margins in all market conditions, while focusing on companies that have the smallest differences between their annual gross profit margins over the past five years. . The fund charges 40 basis points in fees and earns 1.49% per year.
Invesco S&P 500 Pure Growth ETF (Quick quote from RPGRPG – Free report) – Zacks Rank #2; P/E: 26.76X
The underlying S&P 500 Pure Growth Index measures the performance of securities that exhibit strong growth characteristics in the S&P 500 Index. The fund charges 35 basis points in fees and earns 0.91% per year.
SPDR S&P 500 Portfolio Growth ETF (Quick quote SPYGSPY – Free report) – Zacks Rank #2; P/E: 28.44X
The underlying S&P 500 Growth Index measures the performance of the large-cap growth sector in the U.S. stock market. The fund charges 4 basis points in fees and earns 0.87% per year.
Invesco NASDAQ 100 ETF (Quick quote QQQMQQQM – Free report) – Zacks Rank #2; P/E: 30.26X
The underlying NASDAQ-100 Index includes securities of 100 of the largest domestic and international non-financial companies listed on Nasdaq. The fund charges 15 basis points in fees and earns 0.62% per year.
Vanguard Russell 1000 Growth ETF (Quick quote VONGVONG – Free report) – Zacks Rank #2; P/E: 32.60X
The underlying Russell 1000 Growth Index measures the performance of large-cap growth stocks in the United States. The fund charges 8 basis points in fees and earns 0.63% per year.