ETF Strategies To Follow If Fed Cuts Rate

After a May swoon, the U.S. stock market has rallied this month on high hopes of monetary easing policy. This is especially true as the Fed has hinted at a rate cut this year if needed, given that aggravating trade disputes have raised fears of global growth slowdown.

However, a rate cut is not expected this month. Several Fed watchers expect Chairman Jerome Powell to drop the word “patient” from his statement and open the door to a cut next month.

Is Rate Cut Justified?

Bouts of weak data spurred speculation about interest rate cuts. In particular, the ISM’s manufacturing PMI fell to the lowest level since 2016 while IHS Markit US manufacturing PMI came in even worse, declining to levels not seen in a decade. Also, the U.S. economy added 75,000 jobs in May. This is the second time in four months that job growth hit less than the 1,00,000 mark. Wage growth rate also slowed down last month. Inflation ticked up just 0.1% in May following a 0.3% increase in the previous month.

Further, the bond market is signaling a recession with the inversion of the yield curve, in which short-term interest rates are higher than the long-term ones. All these data indicate a softening economy.

Apart from domestic fundamentals, global trends are on the weak side with the escalation in trade tension between the United States and China that has raised the global growth fears. Factory activity also contracted in Europe and Asia last month, compelling central banks across the globe to roll out more stimulus. The World Bank early this month slashed its global growth outlook from 2.9% projected in January to 2.6% -- the slowest growth in three years -- citing trade conflicts, financial strains and unexpectedly sharp slowdowns in wealthier countries.

If the Fed cuts interest rates, investors should follow some strategies in order to gain from the future trend. Here are some of the strategies that could prove extremely beneficial for ETF investors in the coming months:

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