Markets have seemingly overestimated the number of rate cuts this year, but have markets also overestimated the progress against inflation?
Recent consumer data has come in a bit more disappointing than early 2024 positivity may have suggested. Consumer price inflation came in a bit higher than expected in February, while retail sales have dropped. To adapt to that, investors may want to consider active ETFs.
See more: PwC Survey: Active ETFs to See Significant Demand
That, as noted in the Wall Street Journal, has dropped the potential for a 25 basis point cut in June from around 57% a week ago to about 50% now, per the CME FedWatch tool. As such, it appears that rate cuts may occur even further out in 2024 than expected. This follows many months of market anticipation of, first, a recession inducing cuts, and second, waiting for cuts following inflation’s defeat.
In some ways, it creates an image of a “Mission Accomplished” moment against inflation. If inflation does slow the economy down even mildly, while remaining stubborn itself, the Fed’s hesitation to cut could throw off investors. That may offer an opportunity to lean on active ETFs.
Actively managed strategies offer adaptability and flexibility that could help with the rate cuts waiting game. Whereas passive strategies just track broad indexes, active managers can move more quickly. They retain the ability to over- or underweight various stocks. At the same time, they can move toward or away from whole sectors.
That could help if rate cuts don’t arrive and growthy, tech-oriented stocks lose momentum. It could take a fundamental research approach and find firms in underrated sectors with durable cash flows or balance sheets that could help in a slump. T. Rowe Price offers a suite of active ETFs. That includes strategies like, for example, the T. Rowe Price Capital Appreciation ETF (TCAF).
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