U.S. Equity, Tech ETFs Roar Back on Rate Cut Hopes

U.S. equity ETFs rallied after the Federal Reserve held short-term interest rates steady and suggested a cut will come in September, while a surge in AI stocks put to rest concerns that demand for the tech products is slipping.

The Invesco QQQ Trust (QQQ), which tracks the tech-heavy Nasdaq, closed 3% higher. The SPDR S&P 500 ETF Trust (SPY) rose more than 1.6%, while the SPDR Dow Jones Industrial Average ETF (DIA) climbed 0.3%.  

Tech stocks were fueled by a 13% gain in Nvidia stock, itself pulled higher by its addition to Morgan Stanley's Top Picks list, The Street reported, and by Advanced Micro Devices, which gained 4.4% after results last night topped analysts' expectations.  

The VanEck Semiconductor ETF (SMH) gained 7.4% while the Roundhill Magnificent Seven ETF (MAGS) jumped 3.5% and the Technology Select Sector SPDR Fund (XLK) added 4.2%.

Growth of the GraniteShares 2x Long NVDA Daily ETF

U.S. equity ETFs rallied Wednesday after the Federal Reserve held short-term interest rates steady while suggesting that inflation is moving closer to its target, potentially paving the way for future rate cuts. 

The Invesco QQQ Trust (QQQ), which tracks the tech-heavy Nasdaq, led gains with a 2.3% increase in afternoon trading. The SPDR S&P 500 ETF Trust (SPY) rose more than 1.6%, while the SPDR Dow Jones Industrial Average ETF (DIA) climbed 0.7%. 

Investors were particularly attentive to any indications from the Fed regarding possible rate cuts in the fall. The central bank’s statement on inflation progress continued the positive sentiment in U.S. equity markets. 

Meanwhile, Japan-focused ETFs also saw significant gains following the Banks of Japan’s decision to raise its benchmark interest rate. 

The iShares MSCI Japan ETF (EWJ) and JPMorgan BetaBuilders Japan ETF (BBJP) both jumped 2.4%, while the Franklin FTSE Japan ETF (FLJP) rose 2.3%. 

This surge came as Japan’s central bank increased its target policy rate to 0.25% from a previous range of 0% to 0.1%. The Bank of Japan’s move, which included plans to taper its bond-buying program, is expected to bolster Japan’s currency and potentially ease the burden on consumers paying more for imported essentials.

Semiconductor ETFs popped in early trading Wednesday after Advanced Micro Devices (AMD) reported an earnings beat, driven by its AI business. 

SMH, the VanEck Semiconductor ETF jumped more than 6% on the news. AMD is one of the top 5 holdings in the fund, largely outweighed by its chipmaking competitor Nvidia. 

Semiconductor-focused ETFs have sold off in recent weeks on concerns about the ability of AI chipmakers to maintain growth and momentum. Those worries eased after AMD's earnings report, and both AMD and Nvidia soared Wednesday.

SMH 1-month through July 30

Other semiconductor ETFs soared on Wednesday as tech investors piled back into the chip funds. SOXX, the iShares Semiconductor ETF gained 4.5% while XSD, the SPDR S&P Semiconductor ETF nudged 2.6% higher.

Leveraged ETFs on semiconductors were also on a tear Wednesday as the AI trade picked up more steam.

NVDL, the GraniteShares 2x Long NVDA Daily ETF soared 20%, and SOXL, the Direxion Daily Semiconductor Bull 3X Shares rose 13%. According to etf.com data, AI and chipmaking ETFs were among the biggest gainers on Wednesday. 

Markets Await Fed Decision

Broad markets were led higher by the rise in tech and AI as investors awaited the Fed's decision this afternoon.

QQQ, the Invesco QQQ Trust which tracks the tech-heavy Nasdaq rose the most among broad market ETFs, jumping 2.6% driven by gains in tech funds. SPY, the SPDR S&P 500 ETF Trust also edged higher, rising more than 1.5%. DIA, the SPDR Dow Jones Industrial Average ETF Trust shed early losses and rose 0.3%.

According to the CME Fed Watch Tool, investors are forecasting a 97% chance that the central bank will hold rates steady, but traders will be looking for any and all clues about the future path of rate cuts.

Right now, traders aren't expecting a rate cut until September.