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Wall Street was moderately upbeat last week. The S&P 500 gained 1.6%, the Dow Jones lost 0.5% and the Nasdaq soared 3.2%. The tech rally mainly pushed up the S&P 500 and the Nasdaq. Softer inflation data mainly triggered the bets over a sooner-than-expected Fed rate cut.
The expectation itself, in turn, dragged down bond yields. The week started at 4.47% of the benchmark U.S. treasury yields and closed the week at 4.20%. The decline in benchmark treasury yields last week led to gains in growth sectors like technology.
Cooling Inflation
Investors should note that 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 below the forecast of 3.4%. Core CPI hit 3.4%, below expectations of 3.5%. It marked the lowest rate since April 2021.
Wholesale inflation unexpectedly ticked down 0.2% last month, while economists polled by Dow Jones expected the gauge to increase 0.1%. This followed a consumer price index reading that was flat on a monthly basis in May. It was the biggest drop in producer prices since October (read: 3 Undervalued Growth ETF Winners With More Room to Run).
Fed Stays Put, September Rate Cut a Possibility?
The Fed opted to maintain its benchmark interest rate within the range of 5.25% to 5.50%, a level it has maintained since July 2023. However, the Fed has revised its 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 61.1% probability of a 25-bp rate cut in September, up from 50.7% recorded on May 16, 2024, per CME FedWatch Tool. The Fed retained its unemployment and GDP outlook for the year, while raising its neutral rate forecast.
Any Downbeat Development?
The University of Michigan’s Survey of Consumers revealed that consumer sentiment fell to 65.6 in June from 69.1 in May. This reading also came below the 71.5 Dow Jones estimate.
Against this backdrop, below we highlight a few winning ETFs of last week.
The fund’s top three holdings include CleanSpark, Marathon Digital and NVIDIA. Cryptocurrency miner CleanSpark surged 13.3%, digital asset technology company Marathon Digitaljumped 10.4% and NVIDIA added 9.5%. Potential Fed rate cuts have probably boosted investors’ confidence in this ETF.
Investors should also note that the short-term correlation between Bitcoin and the Nasdaq 100 Index is at its highest since early 2023 (per Bloomberg), indicating that further gains in the tech-heavy index may coincide with a rise in the crypto market leader.
The surge in generative AI programs has created a high demand for advanced chips used in AI data centers. Tech giants like Meta, Microsoft, Tesla and Google are mostly buying as many NVIDIA chips as possible. Investors are keenly watching Intel, AMD and NVIDIA for long-term updates on AI chip developments (read: Chip ETFs in Focus on New Generation AI Product Launches).
China Technology
KraneShares CICC China 5G & Semiconductor Index ETF (KFVG - Free Report) – Up 6.2%
The underlying CICC China 5G and Semiconductor Leaders Index tracks the performance of companies engaged in the 5G and semiconductor related businesses, including 5G equipment, semiconductors, electronic components and big data centers.
China’s tech investing backdrop continues to evolve, particularly in the realms of artificial intelligence (AI) and the electric vehicle (EV) sector. Rapid Chinese tech partnerships are happening on EVs. China's commitment to AI has been firm. New AI rules have been introduced in 2024 aiming at streamlining the sector's growth while addressing copyright and safety concerns. All these factors are veering investors’ interest toward China technology (read: China Tech ETFs in Upbeat Momentum: Here's Why).
Government Bond ETFs
PIMCO 25+ Year Zero Coupon US Treasury Index Exchange-Traded Fund (ZROZ - Free Report) – Up 6.1%
The expectation of a September Fed rate cut dragged down bond yields. The week started at 4.47% of benchmark US treasury yields and closed the week at 4.20%. The decline in benchmark treasury yields aided this long-term US treasury bond ETF.
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4 Best ETF Areas of Last Week
Wall Street was moderately upbeat last week. The S&P 500 gained 1.6%, the Dow Jones lost 0.5% and the Nasdaq soared 3.2%. The tech rally mainly pushed up the S&P 500 and the Nasdaq. Softer inflation data mainly triggered the bets over a sooner-than-expected Fed rate cut.
The expectation itself, in turn, dragged down bond yields. The week started at 4.47% of the benchmark U.S. treasury yields and closed the week at 4.20%. The decline in benchmark treasury yields last week led to gains in growth sectors like technology.
Cooling Inflation
Investors should note that 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 below the forecast of 3.4%. Core CPI hit 3.4%, below expectations of 3.5%. It marked the lowest rate since April 2021.
Wholesale inflation unexpectedly ticked down 0.2% last month, while economists polled by Dow Jones expected the gauge to increase 0.1%. This followed a consumer price index reading that was flat on a monthly basis in May. It was the biggest drop in producer prices since October (read: 3 Undervalued Growth ETF Winners With More Room to Run).
Fed Stays Put, September Rate Cut a Possibility?
The Fed opted to maintain its benchmark interest rate within the range of 5.25% to 5.50%, a level it has maintained since July 2023. However, the Fed has revised its 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 61.1% probability of a 25-bp rate cut in September, up from 50.7% recorded on May 16, 2024, per CME FedWatch Tool. The Fed retained its unemployment and GDP outlook for the year, while raising its neutral rate forecast.
Any Downbeat Development?
The University of Michigan’s Survey of Consumers revealed that consumer sentiment fell to 65.6 in June from 69.1 in May. This reading also came below the 71.5 Dow Jones estimate.
Against this backdrop, below we highlight a few winning ETFs of last week.
ETF Areas in Focus
Bitcoin Miners
Valkyrie Bitcoin Miners ETF (WGMI - Free Report) – Up 17.2%
The fund’s top three holdings include CleanSpark, Marathon Digital and NVIDIA. Cryptocurrency miner CleanSpark surged 13.3%, digital asset technology company Marathon Digitaljumped 10.4% and NVIDIA added 9.5%. Potential Fed rate cuts have probably boosted investors’ confidence in this ETF.
Investors should also note that the short-term correlation between Bitcoin and the Nasdaq 100 Index is at its highest since early 2023 (per Bloomberg), indicating that further gains in the tech-heavy index may coincide with a rise in the crypto market leader.
Semiconductors
VanEck Semiconductor ETF (SMH - Free Report) – Up 6.2%
Invesco PHLX Semiconductor ETF (SOXQ - Free Report) – Up 5.9%
The surge in generative AI programs has created a high demand for advanced chips used in AI data centers. Tech giants like Meta, Microsoft, Tesla and Google are mostly buying as many NVIDIA chips as possible. Investors are keenly watching Intel, AMD and NVIDIA for long-term updates on AI chip developments (read: Chip ETFs in Focus on New Generation AI Product Launches).
China Technology
KraneShares CICC China 5G & Semiconductor Index ETF (KFVG - Free Report) – Up 6.2%
The underlying CICC China 5G and Semiconductor Leaders Index tracks the performance of companies engaged in the 5G and semiconductor related businesses, including 5G equipment, semiconductors, electronic components and big data centers.
China’s tech investing backdrop continues to evolve, particularly in the realms of artificial intelligence (AI) and the electric vehicle (EV) sector. Rapid Chinese tech partnerships are happening on EVs. China's commitment to AI has been firm. New AI rules have been introduced in 2024 aiming at streamlining the sector's growth while addressing copyright and safety concerns. All these factors are veering investors’ interest toward China technology (read: China Tech ETFs in Upbeat Momentum: Here's Why).
Government Bond ETFs
PIMCO 25+ Year Zero Coupon US Treasury Index Exchange-Traded Fund (ZROZ - Free Report) – Up 6.1%
The expectation of a September Fed rate cut dragged down bond yields. The week started at 4.47% of benchmark US treasury yields and closed the week at 4.20%. The decline in benchmark treasury yields aided this long-term US treasury bond ETF.