The world’s largest economy is gradually gaining control over the coronavirus outbreak with the help of accelerated vaccine distribution. However, the euphoria surrounding the reopening of the U.S. economy and expectations of a faster economic recovery are weakened by worries over the rising inflation levels.
According to a CNBC article, the Consumer Price Index (CPI) for May is projected to increase 4.7% year over year, per a Dow Jones estimate. Investors are increasingly concerned that rising inflation may hurt corporate margins and profits. They also fear that the consistent rise in inflation may build pressure on the Federal Reserve to tighten the monetary policy, going by a CNBC report.
Notably, market participants are eagerly waiting for the Federal Reserve’s FOMC meeting scheduled for Jun 15-16. Treasury secretary Janet Yellen’s comment that higher interest rates "would actually be a plus for society's point of view and the Fed's point of view," per an interview with Bloomberg, is keeping investors on the edge over concerns about interest rate hikes.
With reference to the Centers for Disease Control and Prevention (CDC) data, more than half of the U.S. population is already administered at least one dose of COVID-19 vaccination, per a CNBC article. Precisely, per the CDC, a CNN report stated that 12 states reached President Joe Biden’s target to vaccinate 70% of adults with a minimum single coronavirus vaccine dose by Jul 4. Notably, the latest public health guidelines issued by the CDC relaxed restrictions on wearing masks at all indoor and public gatherings.
Furthermore, there are certain new economic data releases, which are pointing toward economic rebound. Notably, the recently-released robust job and manufacturing data majorly instilled confidence in the market participants. The Department of Labor reported that the U.S. economy added 559,000 jobs in May compared with the upwardly revised 278,000 payrolls included in April as mentioned in a CNBC article.
Also, the latest ISM Manufacturing PMI data for the United States is painting a rosy picture for the sector. The ISM Manufacturing PMI read 61.2 in May against 60.7 in April. May’s growth was higher than analysts’ expectations of 60.7. Moreover, manufacturing activity rose for the 12th straight month.
Against this backdrop, let’s glance through some ETF areas that make great investing choices for June:
ETF Areas Gaining From Reopening of US Economy
The coronavirus vaccine rollout is gradually containing the spread of the outbreak across the globe. Accordingly, global demand and the economic growth levels are on the mend from the pandemic-led slump. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for the cyclical sectors.
Stocks within the cyclical sectors like industrial, financial, energy and consumer discretionary mostly behave in tandem with the prevalent economic conditions and when growth returns to normalcy, these sectors will automatically perform well.
Let’s look at how some popular ETFs belonging to the cyclical sector will benefit from the current scenario. These are, namely The Industrial Select Sector SPDR Fund XLI, Energy Select Sector SPDR XLE, Fidelity MSCI Materials Index ETF (FMAT), Invesco KBW Bank ETF (KBWB) and Fidelity MSCI Consumer Discretionary Index ETF (FDIS) (read: 4 ETFs & Stocks to Buy This Summer From Top Sectors).
ETF Areas to Hedge Inflation
Considering the current scenario, gold prices are rising. The inflationary backdrop in the United States is favorable for gold as the yellow metal is viewed as a hedge against inflation. Moreover, higher inflation often lowers the value of the concerned currency. If the greenback remains subdued, gold will regain some of its glitter. Also, analysts at the Morgan Stanley (NYSE:MS) expect the precious metal to maintain prices above $1,700 an ounce through the second half of the year as mentioned in a Bloomberg article.
Gold ETFs mostly move in tandem with gold prices. The SPDR Gold Shares (NYSE:GLD) GLD, iShares Gold Trust IAU, SPDR Gold MiniShares Trust GLDM and GraniteShares Gold Trust (BAR) are some of the popular ETFs (read: Will Gold ETFs Keep Soaring After an Impressive May?)
TIPS ETFs offer robust real returns during inflationary periods unlike the unprotected peers in the fixed-income world. It not only provides protection from increasing prices but also safeguards income for the long term. While there are several options in the space to tap the mounting consumer prices, we highlighted the four popular ETFs that could be compelling investments, which are iShares TIPS Bond ETF TIP, Schwab U.S. TIPS ETF SCHP, Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) and iShares 0-5 Year TIPS Bond ETF (STIP).
Small-Cap ETFs to Watch out for
Small-cap stocks as indicated by the Russell 2000 Index have been outperforming the broader market and hitting new all-time highs of late. In fact, the Russell 2000 Index climbed 0.11% in May, witnessing its eighth consecutive positive month. The index has also seen its longest monthly win since 1995. This upside is being largely led by small-cap companies that are closely tied to the U.S. economy and are thus well-positioned to outperform when the economy improves. The latest release of economic data is also implying an improving economy. Therefore, investors can consider Schwab U.S. Small-Cap ETF SCHA, SPDR S&P 600 Small Cap ETF SLY, Vanguard S&P Small-Cap 600 ETF (VIOO) and John Hancock Multifactor Small Cap ETF (JHSC) (read: A Spread of Small-Cap ETFs Touching New Heights).
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SPDR Gold Shares (GLD): ETF Research Reports
iShares Gold Trust (IAU): ETF Research Reports
Energy Select Sector SPDR ETF (NYSE:XLE): ETF Research Reports
Industrial Select Sector SPDR ETF (NYSE:XLI): ETF Research Reports
iShares TIPS Bond ETF (TIP): ETF Research Reports
SPDR S&P 600 Small Cap ETF (SLY): ETF Research Reports
Schwab U.S. SmallCap ETF (SCHA): ETF Research Reports
Schwab U.S. TIPS ETF (SCHP): ETF Research Reports
SPDR Gold MiniShares Trust (GLDM): ETF Research Reports
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