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Rate Cut in the Cards? ETFs to Play

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U.S. producer prices increased less than expected in July as a rise in the cost of goods was moderated by cheaper services, in a sign that inflation continued to ease. The producer price index (PPI) for final demand edged up 0.1% last month after rising by an unrevised 0.2% in June, the Labor Department's Bureau of Labor Statistics said on Tuesday. Economists polled by Reuters had forecast the PPI gaining 0.2%. In the 12 months through July, the PPI increased 2.2% after climbing 2.7% in June.

No wonder, financial markets are expecting an easing cycle by the Federal Reserve starting in September, prompted by slowing inflation and a cooling labor market. Concerns over labor market weakness have heightened following a surge in the unemployment rate to nearly a three-year high of 4.3% in July.

This situation has raised speculation that the Fed might consider a rate cut of 50 basis points, marking a departure from its year-long standpoint of keeping the benchmark overnight interest rate within the 5.25-5.50% range. This range had been established after a cumulative increase of 525 basis points throughout 2022 and 2023.

Growth ETFs in Focus

Cues of hefty Fed rate cuts bode well for growth investing. Traditionally, growth ETFs have performed well in periods of low interest rates as the borrowing costs for companies stay low, enabling them to invest in expansion and innovation.

However, we have highlighted low P/E growth ETFs that are still cheap in valuation as the investing backdrop is still edgy due to the latest tech slump on slight doubt over the faster success of investments in artificial intelligence.

ETFs in Focus

Invesco S&P 500 Pure Growth ETF (RPG - Free Report) – Zacks Rank #2 (Buy); P/E: 10.63X

The underlying S&P 500 Pure Growth Index measures the performance of securities that exhibit strong growth characteristics in the S&P 500 Index. The fund charges 35 bps in fees.

First Trust Large Cap Growth AlphaDEX ETF (FTC - Free Report) – Zacks Rank #2; P/E: 15.60X

The underlying Nasdaq AlphaDEX Large Cap Growth Index is an enhanced index that employs the AlphaDEX stock selection methodology to pick stocks from the Nasdaq US 500 Large Cap Growth Index. The fund charges 60 bps in fees.

Invesco NASDAQ Next Gen 100 ETF (QQQJ - Free Report) – Zacks Rank #3; P/E: 17.78X

The underlying Nasdaq Next Generation 100 Index comprises securities of the next generation of Nasdaq-listed non-financial companies, that is, the largest 100 Nasdaq-listed companies outside of the Nasdaq-100 Index. The fund charges 15 bps in fees.

Invesco Dynamic Large Cap Growth ETF (PWB - Free Report) – Zacks Rank #2; P/E: 22.28X

The underlying Dynamic Large Cap Growth Intellidex Index is designed to provide capital appreciation while maintaining consistent stylistically accurate exposure. The fund charges 16 bps in fees.

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