Stock ETFs Rise as Fed Minutes Hint at Rate Cut

The S&P 500 advanced Wednesday, after the Federal Reserve’s July meeting minutes reinforced hope for lower rates.

The SPDR S&P 500 ETF Trust (SPY) rose 0.4%, Invesco QQQ Trust (QQQ) gained 0.5% and the SPDR Dow Jones Industrial Average ETF Trust (DIA) edged up 0.1%.

Fed officials indicated a likely cut to the benchmark interest rate at their September meeting, providing inflation continues to cool. The minutes revealed that the vast majority of policymakers favored easing monetary policy if economic data aligns with expectations.

The benchmark rate has remained at 5.3%, a near-quarter-century high, since July 2023. Market participants are now pricing in a 100% chance of a rate cut next month, according to CME Group’s FedWatch tool.

U.S. consumer staples and retail ETFs saw gains after Target’s shares surged 12% on second quarter results that surpassed Wall Street’s expectations. The VanEck Retail ETF (RTH) grew 1.3%, while the Consumer Staples Select Sector SPDR Fund (XLP) rose 0.6%.

The Invesco S&P MidCap 400 Pure Value ETF (RFV) closed up 0.5%, despite an 11.7% drop in its holding of Macy’s. The department store slashed its full-year sales outlook as it grapples with increased promotions and cautious shoppers, with revenue falling short of expectations.

After a dramatic rise and fall earlier in the month, the ProShares VIX Short-Term Futures ETF (VIXY) returned to lead the market as investor sentiment wanes ahead of the Fed.

VIXY was up 2.8% in afternoon trading while broad market benchmarks, such as the SPDR S&P 500 ETF Trust (SPY) and the iShares Core U.S. Aggregate Bond ETF (AGG) rose about 0.25% each.

While investors still expect a rate cut in September, the unknown variable that appears to be rattling capital markets is the degree of the cut, and if the Federal Reserve can manage a soft landing with its monetary policy.

In other words, the market can't decide if a 25-basis point cut is coming, indicating a soft landing, or a 50-bp cut is coming, fueling fears of a hard landing and recession.

Investors will get some clues about the health of the economy and markets this Friday, when Federal Reserve Chair Jerome Powell addresses attendees of the Jackson Hole Economic Symposium.

Gold and silver ETFs slid in early trading Wednesday even as gold prices hit record highs. 

According to the World Gold Council, the spot price of gold jumped to more than $2500 an ounce as investors bet on rate cuts from the Fed in September. GLD, the SPDR Gold Trust slid by 0.7% Wednesday morning. SLV, the iShares Silver Trust dipped 0.4%.

Rate cuts make holding gold cheaper for investors of other currencies, while also decreasing the competition for other safe haven assets.

Flows into the ETFs holding the precious metals has jumped in recent months as the likelihood of rate cuts in September firms up. Investors have poured $1.7 billion net into GLD over the last 3 months, while SLV has raked in $1.3 billion.

GLD has outperformed broader markets so far this year, gaining more than 21% while SPY, the SPDR S&P 500 ETF Trust, has added 18%. 

Other gold ETFs took a leg lower on Wednesday as investors turned their interest to broader market funds. IAU, the iShares Gold Trust dropped 0.6% while GDX, the VanEck Gold Miners ETF lost 0.3%. 

In broad markets, SPY added more than half of a percentage point; DIA, the SPDR Dow Jones Industrial Average ETF Trust added 0.3% and QQQ, the tech-heavy Invesco QQQ Trust notched a 0.8% gain.