Monday’s market slump didn’t turn out to be nearly as bad it looked as it would be early in the day. But that decline and a tepid rebound on Tuesday didn’t dent calls for the Federal Reserve to implement rate cuts at its September meeting.
Actually, the recent fragility of global risk assets prompted plenty of market observers to call for the Fed to act now with an “emergency” cut of 50 to 75 bps. It’s debatable whether a few bad days for equities constitutes an emergency. But it’s widely known that rate cuts could benefit an array of assets. Those include the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).
Those exchange traded funds, both of which track the Nasdaq-100 Index (NDX), endedTuesday residing 12.71% below their 52-week highs. That means they’re in corrections. Much of that slide is attributable to the combination of AI becoming a “show me” story and market participants expressing concern about the state of the U.S. economy.
QQQ, QQQM Could Be Rate Cut Beneficiaries
Even without the aforementioned headwinds, QQQ and QQQM stand out among large-cap ETFs as rate cut beneficiaries. That’s because growth companies are often positively correlated to Fed easing.
“In a lower interest rate environment, growth-sensitive sectors such as tech and consumer goods are likely to benefit. These sectors typically perform well when borrowing costs are low, as companies can invest more freely in innovation and expansion. Investors might consider increasing their exposure to these sectors to capitalize on potential gains,” noted deVere Group CEO Nigel Green.
The technology and consumer discretionary sectors combine for over 62% of the QQQ/QQQM portfolios. That confirms rate cuts could be positive for the ETFs.
Regarding growth stocks, including those residing in QQQ and QQQM, there are some broad strokes to consider. Many market observers believe the Fed was to slow to raise interest rates. They believe the agency is now dithering too much on lowering borrowing costs. Disappointment on the rate cut front could be behind stocks’ recent slump. And that indicates the Fed may have no choice but to act boldly and swiftly.
“The markets know better than the Fed. The global rout is a clear signal that investors are bracing for turbulent times. By ignoring these signals, the Fed risks exacerbating the very instability it seeks to prevent,” added deVere’s Green. “As Fed policymakers deliberate, they must remember that the markets have spoken. Ignoring these signals comes at our peril. The Fed must not only listen to the markets but also act with the urgency that the situation demands.”
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