The Zacks Analyst Blog VNQ, ITB, XLY, IWM and GLD

Zacks Equity Research
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For Immediate Releases

Chicago, IL – September 17, 2024 – Zacks.com announces the list of ETFs featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Vanguard Real Estate ETF VNQ, iShares U.S. Home Construction ETF ITB, Consumer Discretionary Select Sector SPDR Fund XLY, iShares Russell 2000 ETF IWM and SPDR Gold Trust ETF GLD.

Here are highlights from Tuesday’s Analyst Blog:

 

5 ETF Zones Set to Benefit Once Fed Initiated Rate Cuts

The Fed is likely to deliver the first interest rate cut since 2020 in its meeting, scheduled to start on Tuesday. Markets are pricing in 50% chances of a 50-bps rate cut and 50% odds of a 25-bps rate cut, according to CME Group's FedWatch tool.

With the declining inflation, cooling labor market and growing economy, policymakers view the current conditions as suitable for a rate cut. Markets have almost fully priced in expectations for 100 bps of Fed rate cuts by the end of 2024, with nearly 60% odds of 125 bps in cuts.

Low Rates: A Boon

Lower interest rates generally lead to reduced borrowing costs, which help businesses expand their operations easily, resulting in increased profitability. This, in turn, stimulates economic growth and provides a boost to the stock market.

In particular, high-dividend-yield sectors, such as utilities and real estate, will be the biggest beneficiaries of the rate cuts, given their sensitivity to interest rates. This is especially true as these offer higher returns due to their outsized yields. In real estate, lower rates can boost housing market activities by making mortgages more affordable. Securities in capital-intensive sectors like telecom will also benefit from lower rates. Businesses will face lower loan rates over time (read: ETFs & Stocks With Yield of More Than 5% to Buy).

Lower rates will have a positive impact on consumer discretionary and financial services. Reduced borrowing costs can lead to increased consumer spending for consumer discretionary sectors. In the financial sector, while lower rates can compress net interest margins for banks, they can also encourage lending and lead to increased consumer and business loan activity.

Small-caps are set to outperform in a lower-rate environment as these companies are loaded with higher levels of debt. Fed rate cuts tend to boost foreign capital inflows into emerging markets like India. As the outlook for India’s economy remains strong, rate cuts will boost foreign capital inflow, which can lead the market to new highs. Gold will also continue to shine as lower interest rates will increase the metal’s attractiveness.

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