Is the rate cycle coming to an end? The Fed has set a blistering pace of rate hikes over the last several months, faster than any time in decades. With inflation cooling, has the central bank done enough? Markets seem to be expecting an end to the rate cycle this Fall. That would set the stage for the U.S. dollar to diminish in strength somewhat, boosting foreign equities. Taken together, that may draw investors towards an international ETF like IDOG.
What is the outlook surrounding rate hikes right now? The core consumer price index rose 0.2% in July, 3.2% from a year period. The 0.2% rise also marks the “smallest back-to-back increase” in more than two years. That progress has led some market observers to eye a rate “pause” in September, underlining falling used-car prices and moderating rents.
Given that past Federal funds rate hikes have increased interest rates, strengthening the dollar, a pause or eventual rate cut could have the opposite effect. The U.S. Dollar Index (DXY) sits at 103.7, getting closer to a summer period high. Whether markets are facing one or more rate hikes, the rate cycle is much closer to ending – or even turning towards cuts – then many more hikes.
Rate Hikes, the Dollar, and Foreign Equities
A dip in the dollar would benefit foreign equities, as those currencies would gain vs. the powerful, global U.S. currency. That might boost the case for a dividend-oriented international ETF like IDOG. IDOG, the ALPS International Sector Dividend Dogs ETF, tracks an equal-weighted index choosing the firm highest dividend yielding firms in each of ten international GICS sectors.
Dividends not only help indicate a firm’s general health, but also can guide investors when investing abroad. That can be a big help when investing in markets where U.S. investors may have less information, as well.
IDOG charges a 50 basis point (bps) fee and recently hit its tenth anniversary as an ETF. Returning nearly 13% YTD, IDOG could be one to watch for investors watching for the end of the rate hike cycle.
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