Exchange traded funds up as rate hike looms

As a pending rate increase threatens to devalue stocks, investors turn to ETFs to the tune of $9.1 billion

Exchange traded funds up as rate hike looms
Fears of a June U.S. Fed rate hike have led to a merry May for the Standard & Poor 500 and the Dow Jones. Investors, wary of rising interest rates devaluing stocks, have flooded into U.S. ETFs, with the Dow gaining 2.1% - its fourth consecutive month of gains - and the S&P up 2.6%.

“While the economy is not booming, I think the data in the month of May have confirmed that people’s worst worries were overdone, and that’s why markets are generally up,” said David Kelly, chief global strategist at J.P. Morgan Asset Management in an interview with the Wall Street Journal.

Technology stocks, which tend to resist turbulence from interest rate changes, in the S&P rose 5.3% higher over the month.

In total, U.S. equity ETFs rose $9.1 billion last week, according to data released by FactSet. Fixed income ETFs increased $1.3 billion.

The U.S. Federal Reserve’s central rate liftoff to 0.5% - the first in seven years – occurred in December of last year, marking notable economic improvement from the 2008 economic crisis. The Fed has growing increasingly hawkish with their monetary policy, with another rate rise highly anticipated in the upcoming FOMC announcement on June 14 – 15.

U.S. Fed chair Janet Yellen will testify to the current state of the nation’s monetary policy before the Senate Banking Committee on June 21, and the House Financial Services Committee on June 22.

Federal Reserve interest rate decision revealed