Displaying items by tag: fed

(Washington)

Markets are currently experiencing a great deal of volatility. The Nasdaq is in a correction and the Dow and S&P 500 have shed all their gains for the year. One of the big reasons why is investors’ fear of rising rates. With that in mind, many are hoping the central bank will save markets via the so-called “Fed put”, or the idea that if things get bad enough, the Fed will come in as a backstop with some sort of measure to boost asset prices. However, the truth is that Wall Street says we are not nearly deep enough into a correction/bear market for the Fed to take any sort of accommodative action.

FINSUM: Powell is much more hawkish than Yellen or Bernanke and we have no illusions that there is going to be any sort of supportive measure in the near term. We expect hikes to continue.

(Washington)

President Trump has been complaining about the Fed’s hawkish behavior for several months. However, yesterday he seemed to escalate his discontent into something more specific. He told the media that he “maybe” regretted appointing Powell to lead the Fed. He said he was intentionally signaling the Fed that he wanted lower interest rates, but he acknowledged that the Fed was an independent entity. When pushed about the circumstances under which he would fire Powell, the President declined to comment.

FINSUM: Investors should keep an eye on whether Trump escalates his rhetoric into action. We doubt he will do anything about the Fed in the near term, but the market would certainly have a big reaction.

(New York)

Investors have gotten so used to low inflation that it is sometimes hard to imagine seeing it rise. However, Morgan Stanley is warning that inflation is rising across the globe and investors need to keep an eye on it. In Europe, Asia, and the US, inflation has risen from 1.1% to 1.4%, and it is bound to move higher, according to Morgan Stanley’s chief global economist. Interestingly, MS argues that the Euro area and Japan will see a higher rise in inflation than the US.

FINSUM: If inflation rises more strongly in other developed markets than the US, will that lead to even more foreign buying of US bonds because yields in those locations are so much lower? In other words, will there be even more demand for US bonds?

(New York)

Inflation is rising across the globe, including in the US. Perhaps more pressingly, the Fed seems absolutely intent on hiking rates as the economy continues to perform very strongly. With that in mind, profiting from rising rates, or at least insulating one’s portfolio, needs to become a priority. Accordingly, here are some ETFs to help: iShares Floating Rate Bond ETF (FLOT), the SPDR Blmbg Barclays Inv Grd Flt Rt ETF (FLRN), the ProShares High Yield—Interest Rate Hdgd (HYHG), the SPDR Portfolio Short Term Corp Bd ETF (SPSB), and the Vanguard Short-Term Corporate Bond ETF (VCSH).

FINSUM: The ProShares fund seems the most interesting of the lot as it invests in high yield bonds while shorting Treasuries to protect against rate hikes, all while delivering less rate sensitivity than regular short-term bonds.

(New York)

With rates rising and yields finally responding in a big way, you may have been wondering which ETFs tend to perform well in such periods. With that in mind, here is a list of the best performing ETFs in periods of rising rates (since 2008). The stats are from thirty day periods of rising rates, which have occurred 18 times since 2008. The best four are: VanEck Vector Oil Services ETF (6.53% average gain), the SPDR S&P Regional Banking ETF (4.9%), the United States Oil Fund ETF (4.54%), and the SPDR S&P Oil & Gas Exploration & Production ETF (3%).

FINSUM: Oil and banking, not really a surprise, but certainly a good reminder for investors. The worst performing funds in the same period tended to be gold funds.