These Top ETF Stories of April Worth a Look in May

April became the worst month of 2024 for Wall Street as the S&P 500 lost 3.4%, the Dow Jones too retreated 3.4%, and the Nasdaq was off by 3.8%. Rising rate worries primarily weighed on Wall Street in April. The U.S. economy has been under pressure from high inflation and slowing growth. Meanwhile, rising geopolitical tensions suggest that inflation will remain high in the near term.

Let’s find out the top ETF stories of April that deserve a look in May.

Fed Rhetoric: Hawkish or Dovish?  

The Fed rhetoric was hawkish in April, which caused the market crash. Later, on May 1, 2024, Fed officials unanimously decided to maintain its benchmark interest rate within the range of 5.25%-5.50%, a level it has held since July 2023.

Fed Chair Jerome Powell indicated that there is an absence of significant progress toward reaching its 2% inflation target and the central bank is in no hurry to reduce borrowing costs due to sticky inflation. However, Powell assured markets that any future policy moves are unlikely to involve rate hikes.

As the Fed rhetoric was hawkish, the benchmark U.S. treasury yields started April at around 4.33%, hit a high of 4.70% and ended the month at 4.69%. But treasury yields dropped to start May as the Fed said it will ease back on balance sheet tightening. As of May 2, 2024, the benchmark treasury yield stood at 4.58%.

As a result, ETFs that offer protection against rising rates are in focus currently. Simplify Interest Rate Hedge ETF PFIX and Global X Interest Rate Hedge ETF RATE which gained in April massively, may drop in May.

How Do Consumer ETFs Perform Amid Falling Confidence?

Consumer confidence fell sharply in April as inflation worries and a downbeat outlook on the job market pushed optimism back to its lowest level since 2022. The Conference Board's consumer confidence index retreated to 97 in April, below economists' expectations of 104 and lower than the March reading of 103.1. The confidence fell despite the rise in wages.

The U.S. employment cost index, which measures compensation and benefits, rose 1.2% from December to March — the highest increase in a year — after rising 0.9% at the end of 2023. However, a drop in bond yields should ease the financial burden on consumers and boost retailers' sales. Higher sales could significantly help retailers protect their margins despite the rising costs associated with increased wage payments.

Consumer Discretionary Select Sector SPDR XLY and VanEck Retail ETF RTH thus deserve close attention. Both ETFs gained on May 2, 2024, but may remain volatile in the month.

Status Quo in Fed’s Interest Rate Policy in Near Term?

The Fed chair Powell apparently dismissed the possibility of a rate hike next month. However, investors digested the Fed's move to ease back on balance sheet tightening in order to stabilize market movements (read: Fed Stays Put, Provides Nuanced Outlook: ETFs Likely to Win).

The scenario can open up good buying opportunities in the tech-heavy Nasdaq-100 index ETF QQQ, which is down 3.4% past month. The tech sector’s supremacy is here to stay, especially due to the ongoing AI craze.

Most big tech stocks are cash-rich and can depend on their cash balances to some extent to finance their projects. Plus, we may expect a Fed rate cut from late 2024. It means the rate scenario could take a turn for the better from here and not worsen. This is a key positive for tech stocks.

Can a Rally in Metal ETFs Continue?

SPDR Gold Trust GLD and iShares Silver Trust SLV added about 2% and 5.2%, respectively, in April. With Wall Street making an ardent effort to log an ascent in May and treasury yields falling, investors may see gold and other metals underperform while stocks gain.  


 

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Invesco QQQ (QQQ): ETF Research Reports

SPDR Gold Shares (GLD): ETF Research Reports

Global X Interest Rate Hedge ETF (RATE): ETF Research Reports

VanEck Retail ETF (RTH): ETF Research Reports

iShares Silver Trust (SLV): ETF Research Reports

Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports

Simplify Interest Rate Hedge ETF (PFIX): ETF Research Reports

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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