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4 Sector ETFs to Play Amid Likely Soft-Landing of U.S. Economy
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The Federal Reserve’s latest move to cut interest rates by 50 basis points should put the U.S. economy on track for a soft landing, according to Goldman Sachs Chief Financial Officer Denis Coleman, as quoted on CNBC.
Several market participants doubted whether the U.S. central bank’s solid rate cut has been delivered in order to tame inflation without pushing the economy into recession. Some analysts have raised concerns about the health of the U.S. economy.
However, Goldman’s CFO’s latest comments can lead investors to heave a sigh of relief. Investors should note that Fed members voted to reduce its benchmark overnight borrowing rate by half a percentage point, or 50 basis points, to a targeted rate of 4.75% to 5.00%. One basis point equaled 0.01% last week.
What Does Soft Landing Mean?
A "soft landing" scenario — where economic growth slows enough to tame inflation but avoids a full-blown recession — helps a few sectors to tend to perform better. Below, we highlight those sectors and their related exchange-traded funds (ETFs) that could gain in prices ahead.
Even during periods of slowing growth, technology remains a key driver of long-term economic development, particularly with ongoing innovations in AI, cloud computing and digital transformation. Companies in software, cybersecurity, semiconductors, and digital services should continue growing. Moreover, a low-rate environment is a plus for the technology sector.
A soft landing often means stable or falling interest rates, which can benefit financial institutions like banks, insurance companies, and asset managers due to the steepening of the yield curve. Since banks borrow money at short-term rates and lend capital at long-term rates, the steepening of the yield curve is always a plus for bank ETFs (read: Can Bank ETFs Gain Hugely Amid Rate-Cut Cycle?).
Real Estate (REITs) – Vanguard Real Estate ETF (VNQ - Free Report)
A soft landing can be supportive of the real estate market as interest rates stabilize, making borrowing costs more predictable. Residential and commercial real estate demand can remain stable or even increase slightly (read: Fed Cuts Rates by 50 Basis Points: Sector ETFs to Play).
In a soft-landing scenario, cyclical sectors like industrials benefit from ongoing economic activity without the sharp declines associated with a recession. Government spending on infrastructure can also be a tailwind (read: 5 Sector ETFs Scaling New Highs on Fed Rate Cuts).
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4 Sector ETFs to Play Amid Likely Soft-Landing of U.S. Economy
The Federal Reserve’s latest move to cut interest rates by 50 basis points should put the U.S. economy on track for a soft landing, according to Goldman Sachs Chief Financial Officer Denis Coleman, as quoted on CNBC.
Several market participants doubted whether the U.S. central bank’s solid rate cut has been delivered in order to tame inflation without pushing the economy into recession. Some analysts have raised concerns about the health of the U.S. economy.
However, Goldman’s CFO’s latest comments can lead investors to heave a sigh of relief. Investors should note that Fed members voted to reduce its benchmark overnight borrowing rate by half a percentage point, or 50 basis points, to a targeted rate of 4.75% to 5.00%. One basis point equaled 0.01% last week.
What Does Soft Landing Mean?
A "soft landing" scenario — where economic growth slows enough to tame inflation but avoids a full-blown recession — helps a few sectors to tend to perform better. Below, we highlight those sectors and their related exchange-traded funds (ETFs) that could gain in prices ahead.
Technology – Technology Select Sector SPDR ETF (XLK - Free Report)
Even during periods of slowing growth, technology remains a key driver of long-term economic development, particularly with ongoing innovations in AI, cloud computing and digital transformation. Companies in software, cybersecurity, semiconductors, and digital services should continue growing. Moreover, a low-rate environment is a plus for the technology sector.
Financials – Invesco KBW Bank ETF (KBWB - Free Report)
A soft landing often means stable or falling interest rates, which can benefit financial institutions like banks, insurance companies, and asset managers due to the steepening of the yield curve. Since banks borrow money at short-term rates and lend capital at long-term rates, the steepening of the yield curve is always a plus for bank ETFs (read: Can Bank ETFs Gain Hugely Amid Rate-Cut Cycle?).
Real Estate (REITs) – Vanguard Real Estate ETF (VNQ - Free Report)
A soft landing can be supportive of the real estate market as interest rates stabilize, making borrowing costs more predictable. Residential and commercial real estate demand can remain stable or even increase slightly (read: Fed Cuts Rates by 50 Basis Points: Sector ETFs to Play).
Industrials – Industrial Select Sector SPDR ETF (XLI)
In a soft-landing scenario, cyclical sectors like industrials benefit from ongoing economic activity without the sharp declines associated with a recession. Government spending on infrastructure can also be a tailwind (read: 5 Sector ETFs Scaling New Highs on Fed Rate Cuts).