Which US stock ETFs will benefit the most from Powell's signal for a rate cut in September?

The Jackson Hole Global Central Bank Annual Economic Policy Symposium is regarded as an important stage for central banks around the world to convey monetary policy signals. It attracts central bank governors and economists from many countries every year. This year's theme of the conference is "Reassessing the effectiveness and transmission of monetary policy".

On Friday, August 23rd, US Fed Chairman Powell explicitly stated that a rate cut is imminent, which led to a significant gap-up opening and closing for the three major US stock indexes and a sharp decline in US bond yields. It was a day of broad gains in US stocks, with 80% of US companies experiencing gains. All 11 sectors of the S&P 500 closed higher, with the real estate sector leading the way with a 2% increase.

At the Jackson Hole Global Central Bank Annual Symposium,Powell said the long-awaited words: it is now time to adjust policies, and "the upward risks to inflation have diminished"..

As soon as the words were spoken, global stock markets shook! US stocks, gold, and other currencies surged in response!

In his speech, Powell said, "I am increasingly confident that inflation is on a sustainable path to reach 2%; the labor market has cooled significantly and is no longer overheated like before... We are not seeking or welcoming further cooling of the labor market conditions." Powell's series of speeches means that the Fed is very likely to cut interest rates at the next policy meeting, which would be the first rate cut in over four years."

Powell said,"The timing and pace of rate cuts will depend on the balance of data, outlook, and risks. Upside risks to inflation have diminished, while downside risks to employment have increased. The rise in unemployment is not due to increased layoffs; rather, it is due to an increase in labor supply and a slowdown in hiring. Powell believes that the labor market seems unlikely to become a source of inflation anytime soon; the cooling of the labor market is "evident" and is no longer overheated."

Market analysts point out that Fed Chairman Powell has sent the strongest signal of rate cuts so far, indicating that the Fed intends to take action to prevent further weakness in the US labor market. According to CME Group's FedWatch tool,The market is betting that there is a 73.5% probability of a 25 basis point rate cut by the Fed in September and a 26.5% probability of a 50 basis point rate cut.

Below, let's explore the performance of equity, fixed income, forex, and commodity asset prices during a rate cut cycle, providing references for investors.

Historical data shows that the Fed's rate cut cycle is often associated with a stock market rebound, especially those rate cut cycles that are not accompanied by a severe economic recession (such as 1987, 1995, and 1998). During these periods, the increase in liquidity brought by rate cuts, which reduces corporate financing costs, typically leads to a rise in stock prices. However, stock market rebounds are usually accompanied by volatility, as rate cut cycles are typically initiated against a backdrop of weak economic performance or downside risks.

During a rate-cutting cycle, interest rate-sensitive industries (such as real estate, finance, and consumer stocks) often perform well. This is because these industries benefit from the reduction in financing costs in a low interest rate environment. However, as the rate cut progresses, growth stocks such as technology stocks may regain market favor, especially when investors anticipate future economic recovery.

Interest rate cuts usually depress short-term and long-term bond yields, leading to a steepening yield curve. This is beneficial for long-term government bonds, as falling yields drive bond prices higher. On the other hand, as inflation expectations decrease, the attractiveness of Treasury Inflation-Protected Securities (TIPS) may decline.

A rate-cut environment generally improves the financing environment for enterprises, causing credit spreads to narrow, especially in the high-yield bond market. However, if the economic slowdown exceeds expectations, the risk in the high-yield bond market may increase, as corporate default rates may rise.

A Federal Reserve rate cut often leads to a weaker US dollar, especially compared to currencies of countries with tighter monetary policy. In this scenario, emerging market currencies and commodity currencies may perform well, especially those of commodity-producing countries that rely on exports.

The depreciation of the US dollar caused by a rate cut may prompt international investors to seek higher-yielding assets, leading to capital flows into emerging markets. However, this may also exacerbate the instability of global capital flows, especially in economies with significant reliance on US dollar financing.

Interest rate cuts are usually beneficial for gold because lower interest rates reduce the opportunity cost of holding gold. At the same time, interest rate cuts often lead to a weaker dollar, which further drives up the price of gold. Other precious metals, such as silver, may also benefit from expectations of increased industrial demand.

Interest rate cuts can enhance global economic growth expectations, potentially boosting the demand for crude oil and industrial metals. However, the risk of economic slowdown may suppress the upward momentum of these commodities' prices.

Interest rate cuts directly impact the reduction of mortgage rates, increasing the attractiveness of the real estate market. A low interest rate environment typically stimulates housing demand, thereby driving up real estate prices, especially in limited supply markets.

Commercial real estate and real estate investment trusts (REITs) perform well in a low interest rate environment, especially when financing costs decrease and leasing market demand remains stable. However, if economic slowdown intensifies, the commercial real estate market may face the risk of reduced leasing demand.

Interest rate cycles are generally favorable for private equity, as lower financing costs make leveraged buyouts and portfolio optimization more attractive. Hedge funds may benefit from market volatility through active strategy positioning, such as capturing opportunities from currency and interest rate fluctuations through macro hedge strategies.

In summary, the Federal Reserve's interest rate cycle has profound effects on different asset classes and market performance. From stocks, bonds, forex, commodities to real estate and alternative assets, the performance of various asset classes is driven by multiple factors, including interest rate changes, economic cycles, market expectations, and the global economic environment. When facing an interest rate cycle, investors can conduct multidimensional analysis and portfolio allocation based on the unique characteristics and risk factors of different asset classes.

Long-term Treasury Bond ETF: Powell mentioned that inflation pressures are easing, indicating that long-term interest rates may decline. As a result, the price of long-term government bonds may rise, benefiting related ETFs such as iShares 20+ Year Treasury Bond ETF (TLT). Investors may consider increasing their allocation to these types of bond ETFs to enjoy capital appreciation from declining interest rates.

Nasdaq 100 ETF:With the Fed hinting that the time for policy adjustments has come and the market's expectation for rate cuts strengthening, this is particularly favorable for growth stocks that rely on a low interest rate environment. ETFs like the Invesco QQQ Trust (QQQ), which covers a large number of technology stocks and other growth companies, may receive a premium.

High yield bond etfIf the expected interest rate decline strengthens, the risk premium of high-yield bonds may decrease, leading to an increase in the price of these bonds. iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and other high yield bond etfs may benefit from this, making them suitable for investors seeking higher returns.

Gold ETFPowell's mentioned policy adjustments may suppress the US Dollar, especially in the context of rate cuts, which usually drives up the price of gold. SPDR Gold Shares (GLD) and other gold etfs are an ideal choice for hedging currency devaluation risk and inflation expectations.

Real Estate Investment Trust (REITs) ETFPolicy adjustments and declining interest rates will reduce real estate financing costs, thereby increasing the attractiveness of the real estate market. Vanguard Real Estate ETF (VNQ) may perform well, making it suitable for investors seeking stable cash flow.

In his speech, Powell indicated that the Fed's confidence in inflation falling to 2% has increased and hinted at the need for policy adjustments, which will have a positive impact on the market. For ETF investors, the mentioned bonds, growth stocks, high yield bonds, gold, and real estate ETFs may be the best allocation choices.

For these potential beneficiaries, investors can use the multi-asset trading wallet BiyaPay to query and follow several stock codes, choose the right time for real-time trading online, and also provide the option to deposit digital currencies (USDT, BTC, etc.), withdraw dollars/Hong Kong dollars to bank accounts, and then transfer funds to other brokerage platforms. This allows BiyaPay to be used as a professional fund transfer tool. By investing in these ETFs through a multi-asset trading wallet, investors can not only benefit from potential interest rate cuts, but also conveniently trade US stocks and make diversified investments to cope with future market fluctuations and boost the market value of US stocks.

- Global X Cloud Computing ETF (CLOU)

CLOU ETF focuses on companies related to cloud computing, covering areas such as Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS). CLOU invests in cloud computing companies with strong growth potential, which tend to perform better in a low-interest-rate environment because their future cash flows have higher discounted values.

- WisdomTree Cloud Computing Fund (WCLD)

The WCLD ETF invests in cloud computing companies with high growth potential, particularly those that rely on subscription revenue models. The ETF's portfolio focuses on small to medium-sized growth companies, which tend to perform well in a low interest rate environment.

– iShares Nasdaq Biotechnology ETF (IBB)

The IBB ETF covers large and mid-cap biotechnology companies listed on the Nasdaq, focusing on the biotech and pharmaceutical sectors. The biotech industry typically has a longer research and development cycle and significant growth potential, making the IBB ETF an attractive investment prospect in a low-interest rate environment.

– ARK Genomic Revolution ETF (ARKG)

ARKG ETF focuses on innovative companies in genomics, biotechnology, and related fields. The ETF is managed by the renowned ARK Investment Management and invests in companies with disruptive potential. ARKG's portfolio includes cutting-edge biotech companies that are poised for significant technological breakthroughs and market growth in the future, making it suitable for long-term investors.

For investors looking to benefit during a rate cut cycle, long-term ETFs in cloud computing and biotechnology sectors are ideal choices. ETFs like CLOU and IBB provide broad industry coverage, while WCLD and ARKG focus on high-growth and innovative companies. These ETFs not only perform well in a low-interest rate environment but also have long-term growth potential, making them more suitable for long-term investor allocation.

During a rate cut cycle, although increasing exposure to long-term assets typically has good return potential, investors need to be cautious of potential risks. If economic conditions deteriorate or inflation exceeds expectations, it could lead to a reversal in market sentiment, thereby affecting the performance of long-term assets. Therefore, investors should balance their allocation by considering their risk tolerance and market expectations.