Fed Likely To Raise Rates Today: 6 ETFs On The Move

The ongoing two-day FOMC meeting is concluding later today and anticipation surrounding its outcome is sky-high. The Fed seems on its way to raise interest rates for the second time in 10 years given the string of solid data and Trump fueled economic optimism. Per the latest poll by CME Group, there is a 97% probability that the Fed will raise rates today by a quarter percentage points. The Fed funds’ futures market shows a 100% chance of liftoff.

Additionally, investors are keenly waiting for the Fed’s guidance on the future rate trajectory. Many analysts are expecting two rate hikes next year while a WSJ poll shows that the Fed will raise interest rates three times next year, suggesting a faster-than-expected tightening path by the central bank.

This is especially true, as the U.S. economy expanded 3.2% in the third quarter, representing the strongest growth in two years while unemployment dropped to a nine-year low of 4.6%. Inflation saw its biggest increase in six months in October. Further, consumer confidence rose to the highest level since July 2007 in November as per the report from the New York-based Conference Board.

Moreover, President-elect Donald Trump’s expansive stimulus plan and a recent OPEC decision to cut oil production to support prices could indicate higher inflation and faster rate increases in the coming years.

Given the positive developments and improving fundamentals, rate increase is widely expected in the meeting. That being said, several ETFs are in focus on the upcoming Fed decision. A few ETFs will be rewarded if the Fed raises rates or signals a hawkish outlook while a few will be severely impacted. Let’s have a look to those:

ETFs to Gain

SPDR S&P Regional Banking ETF 
(KRE - Free Report)

A rising interest rate scenario would be highly profitable for the financial sector as a whole. This is because the steepening yield curve would bolster profits for banks, insurance companies and discount brokerage firms. In particular, the ultra-popular KRE, having AUM of $3.3 billion and average daily volume of 6.3 million shares, will benefit the most. The product follows the S&P Regional Banks Select Industry Index, charging investors 35 basis points a year in fees. Holding 97 securities in its basket, the fund is widely spread out across components with none holding more than 5%. The product has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a High risk outlook.

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Disclosure: None.

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