ETFs
XLK and tech ETFs jump on cooler inflation
Growth – Chart – Uptrend – Stocks
Technology ETFs led the price rally on Wednesday, as rate-sensitive exchange-traded funds rose sharply following colder-than-expected data in the May CPI report.
Renewed hopes for a Fed rate cut by September helped push growth stocks up as much as 2.5%, according to the Interest Rate Index. Technology Select Sector SPDR Fund ETF (XLK).
Rising hopes also propelled the S&P 500, Nasdaq Composite Index and Nasdaq-100 to all-time highs, helping to push the market. SPDR S&P 500 ETF Trust (SPY) And Invesco QQQ Trust (QQQ) at the respective highest prices.
The boost in investor confidence appears to be mainly due to the first zero reading, or lack of monthly change in the CPI, during the current cycle.
This unexpected lull suggests that inflation could be moving closer to the 2% annual growth rate favored by the Fed.
Later Wednesday, investors got a glimpse of the Fed’s rate policy for 2024, as its dot plot projected a rate cut this year, meeting investors’ adjusted expectations.
Among the members of the central bank’s Federal Open Market Committee, four forecast no rate cuts this year, seven forecast one cut and eight forecast two cuts.
Why Lower Rates Are Good for Tech ETFs
Technology ETFs Prices tend to rise when investors expect interest rates to fall. The basic reason is that when interest rates fall, the value of a growth stock’s future earnings increases, making it more attractive to investors and can lead to faster stock price appreciation. .
Technology companies typically invest heavily in research and development and future growth, rather than currently paying dividends to shareholders. When interest rates are low or expected to decline from higher levels, investors tend to be interested in the steady returns offered by bonds (which become less attractive) and are more willing to invest into riskier assets like growth stocks, which could drive up their prices.
It is important to remember that this is a general trend and not a guarantee. There are other factors that can affect the price of technology ETFs, and past performance is not necessarily indicative of future results.
WWDC, Nvidia market capitalization, XLK Holdings
In addition to more favorable news on the interest rate front, XLK is getting a boost from this week’s Worldwide Developers Conference (WWDC), an information technology event hosted annually by Apple Inc Their new AI-powered “Apple Intelligence” has boosted shares of AAPL, which is XLK’s top holding with an allocation of over 20%.
Also worth noting for XLK investors is that Nvidia’s market cap is expected to surpass Apple’s; thus, XLK could be preparing for a weighting change in the fund’s holdings. The chipmaker’s weight could increase from 6% to more than 20% in the event of an XLK rebalance, according to Bloomberg estimates.
The story continues
Permanent link | © Copyright 2024 etf.com. All rights reserved