With the first quarter-point rate cut delivered by the Fed in quite a while and more to come, investors who’ve been holding off on new buys may wish to buy as the sizzling summer leads to a warm autumn for stocks. Indeed, September was supposed to be a historically horrid month for markets.
But this year, it’s been a stellar month, with the S&P 500 gaining just shy of 4% so far this month and the Nasdaq 100 pole-vaulting nearly 5%. And while I may be speaking too soon, given there are two more trading weeks left to go, it’s quite shocking how bullish things got leading up to the big Fed decision. Now that we’ve got cuts and promises of more on the way, I think stocks have what it takes to close out what could be the best month of September in recent memory.
Though valuations might be getting stretched in anticipation of lower rates, I still think the following ETFs are worthy buys for growth, dividends, and, of course, dividend growth.
Vanguard Real Estate ETF
The Vanguard Real Estate ETF (NYSEARCA:VNQ | VNQ Price Prediction) stands out as a major winner from a lower-rate environment. Though the REITs aren’t known for their growth prospects, I must say that lower rates could make them growthier than they have been in recent years.
Undoubtedly, lower rates are a huge deal for the REITs. And while some REITs have more room to gain than others, I’d much rather be in a one-stop-shop ETF like the VNQ. It’s a low-cost ETF that I expect will take the Fed cut news favorably. Additionally, the broad basket of REITs has ample ground to catch up as the rate-cut cycle looks to undo some of the damage done during the prior rate-hike cycle.
If AI disrupts the labor market faster than expected, perhaps more aggressive rate cuts could be in the cards. Either way, the REITs will have more capital to reward shareholders with distribution hikes as rates look to take a few steps back. It’s tough to tell how low rates will go, but the VNQ seems worth picking up while the yield is at 3.8%.
Consumer Discretionary Select Sector SPDR Fund
The Consumer Discretionary Select Sector SPDR Fund (NYSEARCA:XLY) could also be in for continued gains as interest rates look to give consumers more reason to move ahead with that nice-to-have discretionary purchase. Undoubtedly, the combo of lower rates and market highs might just kick off a consumer spending boom, the likes of which we may not have witnessed since the emergence from COVID lockdowns. In any case, the economically sensitive names are probably where investors want to be as the Fed cuts into a bull market.
With the XLY flirting with a breakout to new highs, investors may wish to add the ETF to their shopping cart sooner rather than later. While lower rates are welcome news for consumers, the impact of AI on jobs remains a giant question mark.
Though the 0.8% yield isn’t much to get behind, I do think that the pace of dividend growth makes the timely sector ETF worth adding to a watchlist as the era of rate cuts begins again.
Schwab U.S. Dividend Equity ETF
Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) is a 3.7%-yielder that’s more fitting for investors seeking more income. So far this year, the SCHD has been flat, gaining just 1% at the time of this writing, falling well short of the S&P 500’s 12.5% gain. While the SCHD is more defensively positioned than the relatively tech-heavy S&P, making it less likely to feel the full uplifting force of Fed rate cuts, I do see the ETF as incredibly cheap and putting investors in a good spot should a market upset send stocks into a correction at some point down the line. Where some see underperformance and less upside, others see greater value and less downside risks.
Given markets have seen rate cuts coming from a mile away, it’s tough to tell how much the actual rate cuts could result in a sell-the-news kind of scenario. Either way, not forgetting about defensive names seems shrewd at a time like this, when Liberation Day and the sell-off it brought on now seems like a distant memory.
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