Hot off the official news that the Federal Reserve will be raising interest rates a half a percentage as well as beginning the balance sheet drawdown on June 1, reports the Wall Street Journal, Fox Business’ Liz Claman spoke with Todd Rosenbluth, head of research for ETF Trends, and Aoifinn Devitt, CIO of Moneta, regarding where investors are looking when it comes to ETFs.
For many investors and the markets, news of Powell rejecting a 0.75% increase anytime in the foreseeable future and laying out a clear timeline for the next few months provided reassurance and confidence that has been relatively lacking in 2022, says Devitt. Claman explains that the Fed has laid out a roadmap that includes 0.50% increases, most likely in June and July, and the budget sheet drawdown that begins next month.
The uncertainty in markets had investors focusing on largely risk-off areas as they sought protection from market volatility in April, Rosenbluth says.
“They were willing to focus on more defensive sectors like XLV — the Health Care (Select Sector) SPDR ETF — and consumer staples ETFs,” Rosenbluth explains of investing in April, but with the Fed announcement today, “we’re now more likely to see a bit more risk-on.”
This includes the positive movement of the more traditional growth-oriented stocks, such as tech securities and tech-oriented funds, which have taken a huge hit in recent months. Stocks and markets jumped in the last hour of trading at the reassurance of interest rate increases no larger than 0.50% and Powell’s belief in the economy’s current strength.
Given the volatility of markets in 2022 and the continued uncertainty about recessionary fears and persistent inflation, Rosenbluth recommends diversification for advisors and investors.
“We think investors, again, need to stay diversified and focused more on the downside protection while being part of the upside. We don’t expect we’ll see strong interest, a strong longer-term interest, in technology or more cyclical sectors like materials.”
Other funds that would allow investors to participate in the upside without taking on too much risk include the iShares MSCI USA Min Vol Factor ETF (USMV), the Schwab US Dividend Equity ETF (SCHD), and the Financial Select Sector SPDR Fund (XLF); companies within financials are typically the ones that benefit in rising rate environments, Rosenbluth explains.
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