5 ETFs To Keep An Eye On As Market Anticipates Fed's Preferred Inflation Gauge This Friday
Portfolio Pulse from Piero Cingari
The market is anticipating the release of the November Personal Consumption Expenditure (PCE) price index, the Fed's preferred inflation gauge, this Friday. Economists expect a year-on-year increase of 2.8%, down from October's 3%, and a monthly rate unchanged from October. Core PCE is expected to be at 3.3% year-over-year. The PCE data influences the Fed's monetary policy and interest rate decisions. Five ETFs to watch in relation to the PCE report are TLT, QQQ, IWM, XLRE, and UUP, as they are sensitive to interest rate expectations.
December 20, 2023 | 6:16 pm
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POSITIVE IMPACT
IWM, tracking small-cap stocks, has outperformed recently and may continue to do so if the PCE report suggests potential rate cuts.
IWM could benefit from a PCE report that indicates a slowing inflation trend, as it may lead to market optimism about future rate cuts, which is generally positive for small-cap stocks.
CONFIDENCE 80
IMPORTANCE 70
RELEVANCE 75
POSITIVE IMPACT
TLT has rallied 20% from October lows and crossed its 200-day moving average, indicating a potential trend reversal. It may react positively to lower inflation figures.
TLT, which tracks long-term Treasury bonds, tends to rise when inflation declines, as it reduces expectations for aggressive rate hikes. The upcoming PCE data could reinforce this trend if it shows a deceleration in inflation.
CONFIDENCE 85
IMPORTANCE 75
RELEVANCE 80
POSITIVE IMPACT
XLRE, representing the real estate sector, could see continued performance gains if the PCE report confirms a slowing inflation trend.
The XLRE ETF, which is linked to the real estate sector, is likely to be positively impacted by a PCE report that shows a decline in inflation, as this could lead to lower mortgage rates and support the sector's recovery.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 80
NEUTRAL IMPACT
QQQ, representing Nasdaq 100 tech stocks, could be impacted by the PCE report, as stable inflation and interest rates are crucial for its momentum.
The QQQ ETF, which includes technology stocks, may be sensitive to the PCE data as tech stocks often react to changes in interest rate expectations. However, the impact could be neutral if the PCE report aligns with expectations.
CONFIDENCE 80
IMPORTANCE 70
RELEVANCE 70
NEGATIVE IMPACT
UUP, tracking the dollar's performance, could be pressured if the PCE report suggests the Fed might cut rates in 2024, as it has already seen a significant decline.
UUP could face downward pressure if the PCE report indicates a likelihood of rate cuts, as this would reduce the attractiveness of dollar-denominated assets and potentially weaken the dollar.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 85