Benzinga - by Zacks, Benzinga Contributor.
The start of 2024 has been weak for Wall Street after a banner year due to a decline in big tech stocks and a rise in yields. Notably, the 10-year Treasury yields climbed to above 4% as enthusiasm over the faster interest rate cuts has faded.
The Fed minutes show that it wouldn't cut rates as aggressively as expected for this year. It revealed an uncertain path toward interest rate cuts and reflects a growing sense that inflation is under control and rising concern about the risks that the "overly restrictive" monetary policy may pose to the economy.
The disappointing manufacturing data also added to some weakness in the stock market at the start of the New Year. The U.S. manufacturing sector slipped further into contraction during December, according to the latest PMI data from S&P Global, as output declined and the downturn in new orders gathered pace.
In the last meeting, the central bank penciled in three rate cuts for 2024, citing that inflation is easing and the economy is holding up better. This shift in its monetary policy approach aims to support a stable economic environment without triggering a recession or a significant rise in unemployment.
With a Fed rate cut in the cards, the stock market could touch new highs in the coming months. The Fed's signal to cut 75 bps in interest rates this year is expected to provide more fuel to the broader market's momentum in 2024.
Against such a backdrop, we have highlighted a pack of ETFs that are poised to outperform in 2024:
SPDR Dow Jones Industrial Average ETF (DIA): The Dow Jones, the laggard of the three indexes last year, could be the success story of 2024, given that the current market momentum favors the index. Though the blue-chip index returned less than its two counterparts last year, it hit new peaks on several occasions in late 2023 and is likely to do so in 2024. As such, DIA looks like an excellent pick. With AUM of $32.4 billion, SPDR Dow Jones Industrial Average ETF tracks the Dow Jones Industrial Average Index, holding 30 stocks in its basket. It charges 16 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
ROBO Global Artificial Intelligence ETF (THNQ): The craze for artificial intelligence (NYSE: AI) is expected to stay in 2024, with many experts believing that the AI journey has just begun and more innovations will unfold. The ROBO Global Artificial Intelligence ETF invests in companies around the world that are leading the AI revolution. It holds 62 stocks in its basket and charges 68 bps in annual fees. It has amassed $127.7 million in its asset base.
iShares U.S. Home Construction ETF (ITB): The U.S. housing sector will get a boost from the lower interest rates as a decline in mortgage rates will increase prospective buyers, leading to an uptick in sales. iShares U.S. Home Construction ETF provides exposure to U.S. companies that manufacture residential homes. It has AUM of $2.4 billion and holds a basket of 46 stocks. The product charges 40 bps in annual fees and has a Zacks ETF Rank #3 (Hold).
Financial Select Sector SPDR Fund (XLF): The Fed rate cuts will probably make the yield curve steeper. Regional bank stocks have recovered strongly from one of the most challenging years since the 2008 financial crisis. The ultra-popular Financial Select Sector SPDR Fund ETF seeks to provide exposure to 72 companies in diversified financial services, insurance, banks, capital markets, mortgage real estate investment trusts, consumer finance, and thrifts and mortgage finance industries. It charges investors 10 bps in fees per year and has amassed $34.1 billion in its asset base. XLF carries a Zacks ETF Rank #1 with a Medium risk outlook.
iShares Russell 1000 Growth ETF (IWF): With the Fed's easing policy, growth ETFs will take charge. Growth investing is a stock-buying strategy that aims to profit from companies that grow at above-average rates compared to their industry or the market. iShares Russell 1000 Growth ETF provides exposure to large and mid-capitalization U.S. equities that exhibit growth characteristics. With AUM of $81.7 million and expense ratio of 0.19%, the fund holds 443 securities in its basket and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
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