U.S. Producer Prices Down: ETFs In Focus

A measure of U.S. wholesale price inflation declined in June, owing to a decrease in cost of services. Per CNBC, prices for services fell 0.2% in July and contributed almost 80% of the decrease in the index.

In July 2017, the producer price index (PPI) grew 1.9% year over year compared with 2% in June. Per a Reuters poll, economists expected a 2.1% year-over-year growth in PPI.

Moreover, core PPI which excludes the impact of volatile items like food and energy grew 1.9% year over year in July.

Although the PPI is generally not indicative of the prices consumers pay, as it records the prices that businesses receive from all their customers, it still follows the general inflation trend. Federal Reserve chair Janet Yellen indicated that Fed officials plan to keep increasing short-term interest rates but want to see inflation near their 2% annual target. She also believes that the U.S. economy is strong enough to withstand the Fed’s unwinding of its huge $4 trillion bond portfolio.

The Federal Reserve’s preferred measure of inflation, the core Personal Consumption Expenditures (PCE) index, remained unchanged in June, per data released on August 1, 2017. Excluding food prices and fuel, core PCE measure was 1.5% in June, flat month over month.

However, it is still far from the Fed’s 2% target. Although headline PCE reached 2.1% in February, it has since then declined steadily to settle at 1.4% in June.

Moreover, data released last week showed that there was an increase in the number of people applying for jobless benefits to 244,000 from 241,000.

This clouds the outlook about the timing of further rate hikes by the Fed. Economists expect another rate hike in December and a plan to go about bond sales by September (read: U.S. Small Business Confidence Up in July: ETFs in Focus).

Let us now discuss a few ETFs focused on providing exposure to U.S. equities (read: ETF Asset Report : Developed Markets Rule in Q2).

SPDR S&P 500 ETF (NYSE:SPY) (AX:SPY)

This fund is the most popular ETF traded in the U.S. markets. It seeks to provide exposure to the largest and most stable companies and tracks the S&P 500 index.

It has AUM of $241.26 billion and charges a fee of 9 basis points a year. From a sector look, the fund has high exposure to Information Technology, Financials and Health Care with 23.07%, 14.58% and 14.23% allocation, respectively (as of August 9, 2017). The fund’s top three holdings are Apple Inc (NASDAQ:AAPL) , Microsoft Corporation (NASDAQ:MSFT) and Facebook Inc (NASDAQ:FB) with 3.96%, 2.64% and 1.91% allocation, respectively (as of August 9, 2017). The fund has returned 11.58% in the last one year and 8.22% year to date (as of August 10, 2017). It currently has a Zacks ETF Rank 2 (Buy) with a Medium risk outlook (read: 3 Quotes For Investing During Uncertain Times).

iShares Core S&P 500 ETF IVV

This fund is a low cost ETF that seeks to provide exposure to large established U.S. companies and tracks the S&P 500 index.

It has AUM of $120.88 billion and charges a fee of 4 basis points a year. From a sector look, the fund has high exposure to Information Technology, Financials and Health Care with 23.01%, 14.55% and 14.21% allocation, respectively (as of August 9, 2017). The fund’s top three holdings are Apple Inc, Microsoft Corporation and Facebook Inc with 3.95%, 2.63% and 1.90% allocation, respectively (as of August 9, 2017). The fund has returned 11.72% in the last one year and 8.33% year to date (as of August 10, 2017). It currently has a Zacks ETF Rank 2 with a Medium risk outlook.

PowerShares QQQ ETF QQQ

This fund is a popular ETF that maintains a hefty exposure to U.S. tech companies and tracks the Nasdaq 100 index.

It has AUM of $50.42 billion and charges a fee of 20 basis points a year. From a sector look, the fund has high exposure to Information Technology, Consumer Discretionary and Health Care with 58.58%, 21.95% and 11.09% allocation, respectively (as of August 9, 2017). The fund’s top three holdings are Apple Inc, Microsoft Corporation and Amazon.com Inc (NASDAQ:AMZN) with 12.38%, 8.25% and 6.92% allocation, respectively (as of August 9, 2017). The fund has returned 20.33% in the last one year and 17.97% year to date (as of August 10, 2017). It currently has a Zacks ETF Rank 1 (Strong Buy) with a Medium risk outlook.

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