9 Top Global ETF Trends So Far This Year

Wall Street delivered a solid rally in the first nine months of 2024. The S&P 500 has advanced 20.3%, the Dow Jones has gained 12.3% and the Nasdaq Composite has added 20.7%. The artificial intelligence (AI) craze and rate-cut optimism have been the major driving factors amid recession fears, geopolitical tensions and the sell-off in tech stocks that weighed on investors’ confidence.

Let’s delve a little deeper into the nine top global ETF stories of the first nine months of the year.

Fed Interest Rate Cut

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 in September. This marked the first rate cut in four years.

Low rates reduce the cost of borrowing, which is often needed to finance the expansion of companies, thereby driving growth. Utilities Select Sector SPDR ETF XLU — a rate-sensitive sector — should perform well in a low rate environment (read: Fed Cuts Rates by 50 Basis Points: Sector ETFs to Play).

U.S. Economy Grows Faster Than Expected in Q2

The U.S. economy grew at an annualized rate of 3% in the second quarter of the year, surpassing Wall Street's expectations. According to the Bureau of Economic Analysis's third estimate, this growth rate remained unchanged from the previous estimate. Economists had estimated the reading to show an annualized growth of 2.9%.

The second-quarter growth marks a significant improvement from the 1.4% annualized growth seen in the first quarter. Since small-cap stocks are more domestically focused, an improving U.S. economy bodes well for the pint-sized stocks. iShares MSCI USA Small-Cap Min Vol Factor ETF SMMV should be a good pick in this context.

Cooling Inflation

A robust GDP report and easing inflation fueled further Fed rate cut optimism. The Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred inflation measure, showed a 0.1% month-over-month increase in the core PCE, undershooting Wall Street's expectations.

This contributed to the growing belief that the Fed could achieve a "soft landing" as it has started to cut interest rates. One can tap Vanguard Real Estate ETF VNQ in this regard (read: 4 Sector ETFs to Play Amid Likely Soft-Landing of U.S. Economy).

Gold Touches Record High

Gold has been on a solid ascent, hitting a series of new highs driven by the Fed rate cut optimism, a likelihood of falling greenback, strong physical buying from central banks and the Middle East geopolitical tensions, which raised the appeal for gold as a store of wealth. SPDR Gold Shares GLD has added about 28.5% so far this year (as of Sept. 27, 2024).

Outlook for Semiconductors: Mixed But Optimistic

The AI mania, after starting the year on a strong note, faltered in the middle on fears that some AI investments will take longer to pay off. AI king NVIDIA NVDA shares, although up 151% this year, lost 3.4% past month.

NVDA shares also came under pressure late last week following news that the AI server maker Super Micro Computer SMCI, a major Nvidia customer, was under investigation by the Department of Justice for alleged accounting violations. Also, reports suggested that China was encouraging domestic firms to purchase AI chips locally instead of from NVIDIA.

Despite recent fluctuations, industry experts like Daniel Newman, CEO of the Futurum Group, and Bob O’Donnell, founder of TECHnalysis Research, maintain a positive long-term outlook for the sector, per a Yahoo Finance article. Newman noted that NVIDIA’s stock volatility has been heightened since its 10-for-1 stock split in June, but confidence in the industry’s future remains high.

China Rolls Out Stimulus

On Sept. 24, 2024, China's central bank, the People’s Bank of China (PBOC), announced a broad range of monetary stimulus measures aimed at boosting the world's second-largest economy. This move indicates growing concern within Xi Jinping's administration over the nation’s slowing growth and declining investor confidence.

Several China ETFs have, thus, been hovering around a 52-week high. VanEck ChiNext ETF CNXT and KraneShares CSI China Internet ETF KWEB each has gained more than 25% last week (read: A Few Reasons to Buy China ETFs Now).

Japan Hikes Rates

The Bank of Japan (BOJ) raised its benchmark interest rate and announced plans to reduce bond purchases, marking a significant shift toward monetary policy normalization (read: ETFs in Focus as BoJ Hikes Rates the Second Time Since 2007).

The BOJ raised short-term interest rates for the first time in 17 years on March, increasing them from -0.1% to a range of 0%-0.1%. Then, Japan’s central bank raised its policy rate to approximately 0.25% in August, from a range of 0% to 0.1%.

Simultaneously, the central bank expects its holdings of government bonds to decrease by 7% to 8% over the next two years. As a result, Invesco CurrencyShares Japanese Yen Trust FXY added 6.2% in the past six months (as of Sept. 27, 2024).

ECB Cuts Rates

The European Central Bank (ECB) finally cut its key interest rate in June, marking the first reduction since September 2019. This move brought the rate down from its previous record of 4% to 3.75%, which has been maintained since September 2023. Then the ECB cut rates for the second time in three months in September. The reduction, to 3.5% from 3.75%, came on the heels of cooling inflation. iShares Currency Hedged MSCI Eurozone ETF HEZU has added 3.1% past month and 12% so far this year.

Modi Secures Third Term in India Election

India’s stock market has been riding on the latest Fed rate cut, market-friendly prime minister Narendra Modi-led alliance’s securing of a third term this year and talks of huge semiconductor investments in India. Overseas investors are pouring money into India’s stocks all over again, indicating a strong return to the $5 trillion market after a brief pause earlier this year due to election-related uncertainty. Franklin India ETF FLIN and India Internet & Ecommerce ETF INQQ are some of the ETFs that can be counted on (read: Inside the Recent Rally in India ETFs).

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