2 Financial ETFs That May Benefit From 4 More Years Of Powell At The Fed

 | Dec 08, 2021 10:15

In late November, US President Joseph Biden reappointed Jerome Powell as chair of the Federal Reserve. He will serve another four-year term.

Given uncertainties regarding how the new Omicron variant of COVID-19 might affect Wall Street, analysts are debating when Powell might pull back on accommodative Fed policies and start raising interest rates.

Meanwhile, he recently testified before the Committee on Banking, Housing and Urban Affairs, and said :

“The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation. Greater concerns about the virus could reduce people's willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.”

Later this week, the Consumer Price Index for November will be released. In the case of heightened inflationary pressures, Wall Street expects an imminent change in Fed’s monetary policy. In recent months, the pace of consumer inflation has been about triple the Fed target of 2%.

Financial stocks, like bank shares, typically perform well when interest rates increase. A bank’s profitability improves when it lends money at a higher rate.

As a spokesperson for the Federal Reserve Bank of St Louis noted:

“… banks prefer high interest rates, and certainly their revenues are likely higher when interest rates on loans and other investments are higher.”

According to a report overseen by the US International Trade Administration (ITA),

“Financial markets in the United States are the largest and most liquid in the world.”

In 2020, the market in the States was valued at close to $4.8 trillion .

With that information, here are two exchange-traded funds (ETFs) that could appeal to investors who expect higher returns from US-based financial shares.

h2 1. Vanguard Financials Index Fund ETF Shares/h2
  • Current Price: $97.45
  • 52-Week Range: $69.86 - $101.26
  • Dividend Yield: 1.85%
  • Expense Ratio: 0.10% per year

The Vanguard Financials Index Fund ETF Shares (NYSE:VFH) invests in a range of US-based financial shares. The fund was first listed in January 2004, and net assets stand around $12.8 billion.