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ETFs to Watch: Fed ripples could impact Treasuries, the U.S. dollar and tech

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Federal Reserve Chair Jerome Powell Holds News Conference Following Federal Open Market Committee Meeting

Drew Angerer

The Federal Reserve’s interest rate decision will headline Wall Street’s event calendar next week, with impacts that will ripple into virtually all aspects of the financial markets.

After the central bank finishes its meeting on Nov. 2, it’s widely expected that the Jerome Powell and his cohorts will increase rates by 75 basis points. However, the real focus will likely center around the Fed’s commentary about the future.

Market participants will scour the policy statement and Powell’s remarks for any hawkish or dovish rhetoric, looking to predict what will happen next with interest rates.

Three areas in particular that will be on watch amid the rate decision: U.S. Treasuries, the currency market and the tech space. As a result, exchange traded funds that are interconnected with those areas may notice more volatility.

U.S. Treasury ETFs

Going into the weekend, the U.S. 10-year (US10Y) was sitting just above 4%. Meanwhile, the U.S. 2Y (US2Y) hovered near the 4.40% level. The Fed’s guidance will spark action in the bond market, as traders try to anticipate the future of interest rates. This will impact Treasury yields in one direction or another, depending on the signals sent.

ETFs to watch: (NYSEARCA:AGG), (BND), (TLT), (IEI), (IEF), (SHY), (GOVT), (VGSH), (VGIT), (SCHO), (SCHR), (SPTL), (TLH), and (VGLT).

Currency ETFs

Along with Treasury yields, the currency market represents another area closely tied to Fed policy. Traditionally, as rates increase, the underlying currency is supported.

The dollar has seen strength throughout much of the year so far, as the Fed has aggressively raised rates. However, as traders have begun looking for a pivot in U.S. policy, other central banks have started to step up their tightening. This dynamic that has reined in the dollar lately.

ETFs to watch: (UUP), (USDU), (UDN).

Tech ETFs

Risk assets are particularly sensitive to interest rates. High costs of borrowing limit the ability for startups and other more speculative ventures to get funding, slowing growth prospects.

As such, the information technology sector is one of the key S&P sectors that is highly sensitive to interest rate decisions. A hawkish outlook from the Fed can send tech funds into a spiral and a more dovish tone can render support to the space.

ETFs to watch: (NYSEARCA:XLK), (VGT), (NASDAQ:QQQ), (QQQJ), (SMH), (SOXX), (NYSEARCA:ARKK), (IGV), (CIBR), (SKYY), (FTEC), (CLOU), (HACK), (ROBO), (METV), and (KOMP).



Read More: ETFs to Watch: Fed ripples could impact Treasuries, the U.S. dollar and tech

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