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3 Undervalued Growth ETF Winners With More Room to Run
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US stocks surged to fresh records on Wednesday, thanks to a cooler-than-expected reading on inflation. Although the Federal Reserve held interest rates steady and slashed projections for cuts this year, the possibility of a rate cut in September became vivid.
The S&P 500 notched a record close for the 28th time this year, rising about 0.9% and closing above 5,400. The tech-heavy Nasdaq Composite also jumped about 1.5%, also adding to a record close from the prior day.
Inside Cooling Inflation
The annual inflation rate in the United States slowed to 3.3% in May 2024, the lowest in three months, compared to 3.4% in April and forecasts of 3.4%. Core CPI, which excludes changes for food and energy prices, hit 3.4%, below expectations of 3.5%. It marked the lowest rate since April 2021.
Compared to the previous month, the CPI was unchanged, the minimum since July 2022, compared to forecasts of a 0.1% increase and after a 0.3% rise in April. The monthly core inflation rate also fell to 0.2% from 0.3%, better than forecasts of 0.3%.
September Rate Cut Possibility
The Fed opted to maintain its benchmark interest rate within a range of 5.25% to 5.50%, a level it has maintained since July 2023. However, the Fed has revised rate cut predictions. While previously predicting three rate cuts for the year, the Fed scaled back its estimate to just one due to sticky inflation.
The odds of a rate cut in September rose following the CPI report, but the decision hinges on continued improvement in inflation data. There is currently a 55% probability of a 25-bp rate cut in September, up from 46.8% recorded on Jun 11, 2024, per CME FedWatch Tool. The Fed retained its unemployment and GDP outlook for the year, while raising its neutral rate forecast.
Time for Undervalued ETF Winners With More Room For Growth?
Against this backdrop, below we highlight a few large-cap growth ETF winners that have a P/E less than Nasdaq-100. P/E (ttm) of Nasdaq-100 ETF QQQ stands at 30.26X. These ETF winners have a Zacks Rank #1 (Strong Buy) or #2 (Buy), indicating more growth potential.
Investors should note that growth stocks tend to perform well in a low-interest-rate environment. Companies, especially those in growth phases, often rely on borrowing to finance their expansion. Thus, the potential for lower interest rates ahead is a plus for these stocks, as low rates reduce the cost of borrowing, making it easier for these companies to invest in new projects and fuel growth.
The ClearBridge Large Cap Growth ESG ETF is an actively managed strategy that seeks to achieve long-term capital appreciation through investments in large-capitalization companies with positive ESG attributes that have the potential for high future earnings growth.
P/E: 28.77X
YTD Performance: 14.86%
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3 Undervalued Growth ETF Winners With More Room to Run
US stocks surged to fresh records on Wednesday, thanks to a cooler-than-expected reading on inflation. Although the Federal Reserve held interest rates steady and slashed projections for cuts this year, the possibility of a rate cut in September became vivid.
The S&P 500 notched a record close for the 28th time this year, rising about 0.9% and closing above 5,400. The tech-heavy Nasdaq Composite also jumped about 1.5%, also adding to a record close from the prior day.
Inside Cooling Inflation
The annual inflation rate in the United States slowed to 3.3% in May 2024, the lowest in three months, compared to 3.4% in April and forecasts of 3.4%. Core CPI, which excludes changes for food and energy prices, hit 3.4%, below expectations of 3.5%. It marked the lowest rate since April 2021.
Compared to the previous month, the CPI was unchanged, the minimum since July 2022, compared to forecasts of a 0.1% increase and after a 0.3% rise in April. The monthly core inflation rate also fell to 0.2% from 0.3%, better than forecasts of 0.3%.
September Rate Cut Possibility
The Fed opted to maintain its benchmark interest rate within a range of 5.25% to 5.50%, a level it has maintained since July 2023. However, the Fed has revised rate cut predictions. While previously predicting three rate cuts for the year, the Fed scaled back its estimate to just one due to sticky inflation.
The odds of a rate cut in September rose following the CPI report, but the decision hinges on continued improvement in inflation data. There is currently a 55% probability of a 25-bp rate cut in September, up from 46.8% recorded on Jun 11, 2024, per CME FedWatch Tool. The Fed retained its unemployment and GDP outlook for the year, while raising its neutral rate forecast.
Time for Undervalued ETF Winners With More Room For Growth?
Against this backdrop, below we highlight a few large-cap growth ETF winners that have a P/E less than Nasdaq-100. P/E (ttm) of Nasdaq-100 ETF QQQ stands at 30.26X. These ETF winners have a Zacks Rank #1 (Strong Buy) or #2 (Buy), indicating more growth potential.
Investors should note that growth stocks tend to perform well in a low-interest-rate environment. Companies, especially those in growth phases, often rely on borrowing to finance their expansion. Thus, the potential for lower interest rates ahead is a plus for these stocks, as low rates reduce the cost of borrowing, making it easier for these companies to invest in new projects and fuel growth.
ETFs in Focus
SPDR Portfolio S&P 500 Growth ETF (SPYG - Free Report)
The underlying S&P 500 Growth Index measures the performance of the large-capitalization growth sector in the U.S. equity market.
P/E: 28.44X
YTD Performance: 23.79%
Fidelity Nasdaq Composite Index ETF (ONEQ - Free Report)
The underlying NASDAQ Composite TR USD is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange.
P/E: 28.74X
YTD Performance: 15.67%
ClearBridge Large Cap Growth ESG ETF (LRGE - Free Report)
The ClearBridge Large Cap Growth ESG ETF is an actively managed strategy that seeks to achieve long-term capital appreciation through investments in large-capitalization companies with positive ESG attributes that have the potential for high future earnings growth.
P/E: 28.77X
YTD Performance: 14.86%