Less-Than-Expected Inflation in July: Growth ETFs to Gain?

The Consumer Price Index (CPI) increased 0.2% sequentially and 2.7% year over year, according to the Bureau of Labor Statistics (BLS). This compares with Dow Jones forecasts of 0.2% monthly and 2.8% annual growth, as quoted on CNBC.

Core Inflation at Multi-Month Highs

Excluding volatile food and energy prices, core CPI rose 0.3% in July and 3.1% annually, in line with monthly expectations but slightly above the 3% yearly forecast. The monthly core gain was the largest since January, while the annual pace was the highest since February. Federal Reserve officials typically view core inflation as a better indicator of long-term price trends.

Market Reaction and Fed Rate Cut Speculation

Following the CPI release, U.S. stock markets rallied, while Treasury yields were mixed. Investors boosted bets that the Federal Reserve could cut interest rates in September, with market pricing also indicating a possibility of another cut in rates in October. Fed officials are also concerned about labor market weakness, which could support the case for rate cuts.

Analysts’ Views

Many economists believe tariff effects are likely to cause one-time price hikes rather than continued inflation, though the broad range of goods covered under Trump’s tariffs has raised the chances of prolonged price pressures, as quoted on CNBC.

Time for Growth Stocks?

Growth stocks perform better in a low-rate environment. Low rates reduce the cost of borrowing, often needed to finance the expansion of companies. Lower rates reduce the attractiveness of fixed-income investments like bonds, leading investors to seek higher returns in the equity markets. Growth stocks, with their potential to offer high returns, become more appealing to investors in this environment, driving up their prices.

ETFs to Buy

Against this backdrop, below we highlight a few top-ranked growth-based exchange-traded funds (ETFs) that can be tapped if the Fed starts cutting rates soon.

Vanguard Growth ETF VUG – Zacks Rank #1 (Strong Buy)

Invesco S&P 500 Pure Growth ETF RPG – Zacks Rank #2 (Buy)

Invesco Large Cap Growth ETF PWB – Zacks Rank #1

Vanguard S&P 500 Growth ETF VOOG – Zacks Rank #1

iShares S&P 500 Growth ETF IVW – Zacks Rank #1

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This article originally published on Zacks Investment Research (zacks.com).

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