The Federal Reserve’s latest move to lower interest rates has injected a surge of optimism into global markets and commodities. Wall Street has been riding high, nearing its 52-week peak, with several sectors experiencing significant gains. This Fed-fueled rally has propelled certain exchange-traded funds (ETFs) to their highest points in a year, particularly in three key areas: utilities, India, and gold.
The Fed’s decision to cut rates by 50 basis points last Wednesday marked its first reduction since March 2020. This move, widely anticipated by the market, was driven by softer-than-expected economic data, leading to calls for a more substantial rate cut. The new benchmark policy rate now stands between 4.75% and 5.00%.
Further rate cuts are expected in the months ahead, with the Federal Open Market Committee (FOMC) projecting an additional 50 basis points in cuts by year-end. The FOMC also forecasts a total of 2 percentage points in rate reductions by 2026, creating a favorable environment for certain sectors.
Utilities ETFs:
The utilities sector, known for its stability and consistent dividends, thrives in a low-rate environment. This makes it a particularly attractive investment during periods of rate cuts. Several prominent utilities ETFs, including Virtus Reaves Utilities ETF (UTES), S&P 500 Utilities Sector SPDR (XLU), and Fidelity Utilities MSCI ETF (FUTY), reached 52-week highs on September 20, 2024.
India ETFs:
India ETFs have also experienced a significant surge, likely fueled by the weakening U.S. dollar and India’s promising growth prospects. Franklin India ETF (FLIN), India Internet & Ecommerce ETF (INQQ), First Trust India Nifty 50 Equal Weight ETF (NFTY), and Columbia India Consumer ETF (INCO) have all climbed to new highs. Robust public investment and strong private consumption in India have led to upgraded growth forecasts, further bolstering investor confidence in the country. The country’s central bank anticipates increased spending on both essential and non-essential items by Indian consumers, a trend likely to continue throughout the next year. The upcoming festive season is expected to further fuel this rise in consumer consumption.
