After a tough January, investors are seeing some respite in February. Solid fourth-quarter earnings releases and an encouraging labor market scenario keep the market sentiments improving. Market analysts think that the improving jobs report signals a higher possibility of the Federal Reserve hiking the benchmark interest rates in March. This might be preparing investors for the upcoming rate hike, supporting market sentiments.
The Federal Reserve has indicated that the first rate hike since 2018 could be seen as early as March 2022. It has already started tapering bond purchases, which it expects to complete by this March.
Now, all eyes are on the Consumer Price Index report. Analysts expect to see continued hot inflation results with the metric for January to touch the highest pace since 1982 (per a CNBC article).
In this regard, Art Hogan, chief market strategist at National Securities, has also commented that “The market seems to have found a more constructive tone in the tug of war between trepidation over the Fed and the better fundamentals that we’ve seen in both earnings and the economic data. Having Disney do better than Netflix after its earnings report certainly seems to be a positive,” as stated in a CNBC article.
Considering the current backdrop, let’s take a look at some ETF areas that can be great additions to your portfolio: Banking ETFs
Several factors are working in favor of the space. The shift toward a tighter monetary policy will push yields higher, thereby helping the financial sector. This is because rising rates will help in boosting profits for banks, insurance companies, discount brokerage firms and asset managers. The steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margins. As a result, net interest income, which constitutes a chunk of banks’ revenues, is likely to receive support from the steepening of the yield curve and a modest rise in loan demand. Notably, as the economy starts operating in full swing, the banking space will be able to generate more business.
Let’s take a look at some banking ETFs that can gain from the current environment: First Trust Nasdaq Bank ETF FTXO , Invesco KBW Bank ETF KBWB , Invesco KBW Regional Banking ETF (KBWR), iShares U.S. Regional Banks ETF (IAT) and SPDR S&P Regional Banking ETF (KRE) (read: Warren Buffett Wins in 2022: ETF Lessons to Learn From ). Technology ETFs
The technology space has been showing a strong comeback after a disturbing January. Investors are resorting to their favorite space after sell-offs as they appear to be great bargain buys at the current levels. Going on, technology has been playing an instrumental role amid the ongoing COVID-19 uncertainty in aiding people in maintaining safe-distancing norms. Certain other ‘new normal’ trends have also emerged amid the health crisis like work from home, increasing digital payments, growing video streaming and soaring video game sales.
The pandemic has been a blessing in disguise for the e-commerce industry as people are practicing social distancing and shopping online for all essentials, especially food items. The world is gradually moving toward digitization, increasing the dominance of technology in the financial sector.
Investors willing to be part of the tech rally can bet on some top-ranked technology ETFs like Vanguard Information Technology ETF VGT , The Technology Select Sector SPDR Fund XLK , iShares U.S. Technology ETF (IYW) and First Trust NASDAQ-100-Technology Sector Index Fund (QTEC) (read: Be Choosy In Tech Investing: ETFs to Buy/Sell ). Material ETFs
The materials sector performed decently in 2021. In addition, the space is expected to remain strong as improving labor market conditions, growing consumer confidence, accelerated coronavirus vaccine rollout and the passage of the much-awaited $1.2-trillion infrastructure bill are pointing toward a faster recovering economy.
The strong jobs report for January is leading to solid optimism. The U.S. economy added 467,000 jobs in January 2022, surpassing market expectations of a rise of 150,000. The upside was largely driven by easing business restrictions amid the reopening of economies and accelerated coronavirus vaccine rollout. January figures stood out to be pleasantly surprising as the Omicron coronavirus variant weighed on the jobs market. The ADP report also showed that private companies cut 301,000 jobs.
Against this backdrop, let’s look at some material ETFs like iShares U.S. Basic Materials ETF IYM , The Materials Select Sector SPDR Fund XLB , Vanguard Materials ETF (VAW) and Fidelity MSCI Materials Index ETF (FMAT) (read: Top-Ranked Material ETFs to Bet on This Year ). Energy ETFs
The coronavirus vaccine rollout is gradually […]
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