All exchange traded fund (ETF) signs are pointing to an interest rate cut from the Federal Reserve come Sept. 18. Assuming labor conditions do not unexpectedly tighten, the August employment report that comes out Friday, Sept. 7, could have some influence on the decision, says Gary Gordon for ETF Expert. More than likely though, the cut will happen since problems in the housing market and credit seem endless without it.
Financials, such as the Financial Select SPDR (XLF), are one of the sectors that have suffered most from the housing market slump and subsequent credit problems. Currently, XLF is down 6.5% year-to-date. So if an interest rate reduction were to happen, the lower rate that banks have to borrow from one another should help them perform better. The key word here is "should." Gordon argues financial ETFs might not benefit because of the lack of confidence in the industry lately. It will be interesting to see what happens.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.