Real Estate, Small-Cap, Gold Miner, Solar Stocks Go Wild On Prospect Of Fed Rate Cuts
Portfolio Pulse from Piero Cingari
Following the Federal Reserve's meeting and Powell's press conference, sectors like real estate, small-cap companies, gold miners, and solar stocks have rallied due to the expectation of interest rate cuts in 2024. The Real Estate Select Sector (XLRE) surged 6%, the iShares Russell 2000 ETF (IWM) rose 6.9%, the VanEck Gold Miners ETF (GDX) soared 8.8%, and the Invesco Solar ETF (TAN) skyrocketed 17%. Lower interest rates reduce borrowing costs, making mortgages and loans more affordable, which boosts real estate demand and prices. Small-cap companies benefit from cheaper traditional bank financing, and solar and gold mining companies gain from lower capital borrowing costs and higher present value of future cash flows.
December 14, 2023 | 6:18 pm
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POSITIVE IMPACT
The VanEck Gold Miners ETF (GDX) has soared by 8.8%, likely due to lower interest rates reducing capital borrowing costs and potentially leading to higher gold prices.
Gold miners benefit from lower interest rates as they reduce the cost of capital and can lead to higher gold prices, which is favorable for GDX.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 90
POSITIVE IMPACT
The iShares Russell 2000 ETF (IWM) has risen by 6.9%, benefiting from the prospect of lower interest rates which could ease borrowing costs for small-cap companies.
Small-cap companies are sensitive to interest rate changes due to their reliance on bank financing. The expected rate cuts are likely to reduce their borrowing costs, which is positive for IWM.
CONFIDENCE 85
IMPORTANCE 75
RELEVANCE 90
POSITIVE IMPACT
The Invesco Solar ETF (TAN) has skyrocketed by 17%, with lower interest rates enhancing the present value of future cash flows and reducing capital costs for solar projects.
Solar stocks are highly sensitive to interest rate changes due to the capital-intensive nature of the industry and the valuation of future cash flows. TAN's significant rally reflects the positive impact of anticipated rate cuts.
CONFIDENCE 85
IMPORTANCE 85
RELEVANCE 90
POSITIVE IMPACT
The Real Estate Select Sector (XLRE) has seen a 6% increase since the Fed's rate decision, indicating a positive outlook for the real estate sector due to lower anticipated interest rates.
Lower interest rates typically lead to increased demand for real estate, which can drive up property prices and benefit real estate stocks. XLRE's recent surge reflects this optimism.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 90