Top ETF Stories of the First Nine Months of 2024

With just a few trading days left to end the first nine months of 2024, one cannot help but note Wall Street's remarkable rally in this span, buoyed by the artificial intelligence (AI) craze and rate-cut optimism. A surge in technology stocks and the rise in the share of the "Magnificent Seven" have also added to the strength. The S&P 500 and Dow Jones Industrial have risen 20.2% and 12%, respectively, and the Nasdaq Composite has gained 20.4%. 

The strong gains were a breather amid the economic slowdown worries, geopolitical tensions and uncertainty surrounding the elections.

Below, we discuss some of the hot events of the first nine months of this year that influenced the market in a big way:

Dovish Fed

After holding the rates at a 23-year high for 14 consecutive months since July 2023, Federal Reserve Chair Jerome Powell kicked off the new rate cycle era by initiating a 50 basis points cut in interest rates. This marked the first rate cut since 2020 to address slowing economic growth and showed greater confidence that inflation is moving sustainably toward the 2% target level.

The central bank projects two more rate cuts of 50 bps in its final two meetings this year due in November and December. It also indicates another 100-bps rate cut next year and a 50-bps cut in 2026, which means four rate cuts in 2025 and two in 2026. Low rates reduce the cost of borrowing, which is often needed to finance the expansion of companies, thereby driving growth. This can positively impact sectors like real estate, consumer discretionary and financial services, which are typically sensitive to interest rate changes. 

In real estate, lower rates can boost housing market activity by making mortgages more affordable. For consumer discretionary sectors, reduced borrowing costs can lead to increased consumer spending. In the financial sector, while lower rates can compress net interest margins for banks, they can also encourage lending and potentially lead to increased consumer and business loan activity (read: 5 Sector ETFs Scaling New Highs on Fed Rate Cuts).

As a result, investors could bet on any of these sectors to magnify gains in the rest of the year. Some of the ETFs include Vanguard Real Estate ETF VNQ, Consumer Discretionary Select Sector SPDR Fund XLY, iShares U.S. Home Construction ETF ITB, SPDR S&P Telecom ETF XTL and Financial Select Sector SPDR Fund XLF. XLF has a Zacks ETF Rank #1 (Strong Buy), while the rest have a Zacks ETF Rank #3 (Hold).

AI Boom

The AI boom will continue to fuel the rally in the broader equity market, with companies investing huge sums in the technology sector and beyond. The expansion of AI applications holds the promise of ushering in fresh growth opportunities. According to a new report by Grand View Research, the global artificial intelligence market is expected to witness a CAGR (2024-2030) of 36.6% to reach $811.75 billion by 2030. 

Investors seeking to make the most of the AI industrial revolution should consider utility ETFs like Global X Robotics & Artificial Intelligence ETF BOTZ, and Global X Artificial Intelligence & Technology ETF AIQ.

Tech Remains the Hot Spot

The technology sector is still the best trade of 2024 despite the steep sell-off in July and August. The rapid adoption of AI and lower rates will continue to drive the sector higher. As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for further initiatives when interest rates are low. 

Further, cutting-edge technologies, including cloud computing, big data, the Internet of Things, wearables, VR headsets, drones, virtual reality, machine learning, digital communication, blockchain and 5G technology, will continue to drive the sector. Meanwhile, worldwide IT spending is expected to increase 8% year over year to $5.06 trillion this year, according to the latest forecast by Gartner. This will put worldwide IT spending on track to surpass $8 trillion well before the end of the decade. Higher spending across software, data center systems, IT services and semiconductors will provide another boost to the sector.

Some of the Zacks Ranked #1 ETFs in the space are Select Sector SPDR Technology ETF XLK, MSCI Information Technology Index ETF FTEC, Vanguard Information Technology ETF VGT and iShares Dow Jones US Technology ETF IYW.

Utility: An Emerging Star

Utility is the rising sector, given the dual tailwinds of the AI boom and stock market volatility triggered by slowdown concerns, geopolitical tension and the looming presidential election.  Being a low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or safe haven amid economic or political turmoil.

AI is bolstering electricity demand, as data centers require tons of energy for computing and cooling power. A simple ChatGPT task uses 10 times the energy a normal Google search does. So, data centers with a capacity of 30 megawatts are boosting capacity to handle 300 megawatts of power. This has made the traditional utilities sector of the market most appealing (read: Forget Technology, Focus on Utility ETFs to Tap AI Boom). 

Investors seeking to make the most of this trend should consider utility ETFs like Utilities Select Sector SPDR XLU, Vanguard Utilities ETF VPU and iShares U.S. Utilities ETF IDU. These funds have a Zacks ETF Rank #3.

Gold Shines

Gold has been on a solid ascent, hitting a series of new highs driven by the Fed rate cut optimism, China measures and the Middle East geopolitical tensions, which raised the appeal for gold as a store of wealth. Gold is often used as a means of preserving wealth during times of financial and political uncertainty and usually does well when other asset classes struggle. 

When interest rates fall, gold becomes more appealing compared to fixed-income assets such as bonds, which would yield weaker returns in a low-interest-rate environment. Meanwhile, China's central bank unveiled its biggest stimulus since the pandemic to pull the economy out of the deflationary pressure. Further, strong physical buying from central banks and investors in Asia has also been a pillar of support (read: 5 Popular ETFs to Tap Soaring Gold Prices).

The yellow metal is up 27% this year, outperforming the broader market index. The bullish trend is likely to continue for the rest of the year. Given the optimism, investors have a long list of options to tap into the metal’s rally. The five most popular options that are directly linked to the spot gold price or futures to gain exposure to the metal are SPDR Gold Trust ETF GLD, iShares Gold Trust IAU, SPDR Gold MiniShares Trust GLDM, Aberdeen Standard Physical Swiss Gold Shares ETF SGOL and iShares Gold Trust Micro IAUM. All these ETFs have a Zacks ETF Rank #3.

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