At an International Monetary Fund event on Nov 9, Fed Chair Jerome Powell, along with other central bank officials, adopted a tougher stance on continuing interest rate hikes, expressing doubts about whether current rates are sufficient to curb inflation. Notably, the Fed stayed put in its latest meeting.

This is quite a shift from the recent sentiment seen in investors that the central bank would be dovish going forward, or else it would run the risk of landing the economy into a recession. These recent comments indicate that the Fed officials still believe that further rate hikes are in the cards.

Meanwhile, Morgan Stanley predicts that the S&P 500 Index will touch 4,500 by the end of the next year, compared to its closing value of 4,426.75 on the last trading day. Morgan Stanley's more optimistic stance for 2024 marks a substantial change from the previous bearish sentiment regarding US stocks, especially in light of concerns about the prolonged high interest rates. Previously, the bank's target for the S&P 500 at the year-end was set at 3,900.

The year-end rally may be extended into the next year. Morgan Stanley's strategists, including Serena Tang and Vishwanath Tirupattur, anticipate that U.S. stocks and bonds will outdo their emerging markets peers in 2024, as quoted on Bloomberg. They believe that US earnings growth will hit a trough in early 2024 and subsequently recover.

Whatever the case, another Fed hike or not, rates are likely to remain elevated in the United States due to sticky inflation. Investors are bracing for continued volatility in U.S. Treasuries, as moderate economic uncertainties persist. There are chances of a longer-than-expected period of elevated interest rates.

Time for Value ETFs?

Firstly, value stocks perform better in a higher rate environment. Currently, we are in a “good news is bad news” zone. Any show of economic resilience is likely to bring share prices down as the Fed will turn hawkish. Hence, buying affordable yet high-potential stocks that could become tomorrow's big winners could be a prudent choice.

ETFs to Buy

Against this backdrop, below we highlight a few large-cap value ETFs that have beaten the S&P 500 (up 0.9%) past month, have a P/E less than S&P 500 (22.20X) and have a Zacks Rank #1 (Strong Buy) or #2 (Buy).

SPDR Dow Jones Industrial Average ETF (DIA Quick QuoteDIA - Free Report)

The SPDR Dow Jones Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average. The fund charges 16 bps in fees.

P/E: 17.88X

One-month Performance: 1.70%

Zacks Rank: #1

iShares S&P 500 Value ETF (IVE Quick QuoteIVE - Free Report)

The S&P 500 Value Index measures the performance of the large capitalization value sector of the U.S. equity market. It is a subset of the S&P 500 and consists of those stocks in the S&P 500 exhibiting the strongest value characteristics.

P/E: 20.25X

One-month Performance: 1.96%

Zacks Rank: #1

Invesco Dividend Achievers ETF (PFM Quick QuotePFM - Free Report)

The underlying NASDAQ US Broad Dividend Achievers Index is designed to identify a diversified group of dividend-paying companies which have increased their annual dividend for 10 or more consecutive fiscal years.

P/E: 17.52X

One-month Performance: 1.06%

Zacks Rank: #2

SPDR Portfolio S&P 500 Value ETF (SPYV Quick QuoteSPYV - Free Report)

The S&P 500 Value Index measures the performance of the large-capitalization value sector in the U.S. equity market.

P/E: 17.30X

One-month Performance: 1.92%

Zacks Rank: #1

Vanguard S&P 500 Value ETF (VOOV Quick QuoteVOOV - Free Report)

The Vanguard S&P 500 Value ETF Fund seeks to track the performance of the S&P 500 Value Index.

P/E: 19.70X

One-month Performance: 1.90%

Zacks Rank: #1