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Markets Digest Inflation News, Estimate Rate Raises

The consumer price index (CPI) came in hot this week, with inflation numbers for October hitting their highest in 30 years at 6.2% over last year. Markets responded with falling stocks and rising bond yields, as well as a mass sell-off in tech stocks, but seem to have course corrected for now, reports CNBC.

Commodities have hit a new record on the S&P 500, signaling that investors are betting on inflation lasting, going counter to the Fed’s belief that it is merely transitory. Tech was down initially when the CPI came out as bond yields went up, putting pressure on the growth sectors of equity markets.

“We’re going to have this push and pull where we get these headline numbers that shock the markets a bit, like with inflation yesterday,” Yung-Yu Ma, chief investment strategist at BMO Wealth Management, said.

Supply and demand imbalances continue as the beleaguered supply chain remains woefully behind heading into the holiday season for many countries. While many analysts were anticipating inflation numbers to have at least sustained last month, the amount of increase seems to have taken most by surprise.

“The truth is you can’t shut down a $20 trillion economy and not feel some bumps as it restarts, but we are hopeful the supply chain issues will resolve over the coming quarters and inflation should calm down as well,” said Ryan Detrick, chief market strategist for LPL Financial.

Traders are betting on at least two interest rate hikes by the central bank next year, the first anticipated to begin in July once the Fed’s bond tapering completes, according to the Fed futures market.

Finding Dividends in the Midst of Rising Rates

For investors that are looking for higher rates of dividends in rising rate environments, the VictoryShares Dividend Accelerator ETF (VSDA) is an option to consider. The fund offers exposure to large-cap U.S. stocks that have a history of dividend growth as well as a forecasted future of dividend growth as well. Through its focus on dividend growth instead of yield, it can provide diversification potential, especially when rates are rising.

The fund seeks to track the Nasdaq Victory Dividend Accelerator Index, which uses a rules-based approach to find dividend-paying securities that have high potential future dividend growth. The index is weighted in a way that maximizes dividend growth at a portfolio level. Companies included in the index come from the Nasdaq US Large Mid Cap index which is made up of the top 90% of companies by market cap in the U.S.

The top sector allocations for VSDA include industrials at 22.82%, consumer staples at 17.53%, healthcare at 15.52%, financials at 10.99%, and consumer discretionary at 9.22%.

VSDA has an expense ratio of 0.35%.

For more news, information, and strategy, visit the Nasdaq Portfolio Solutions Channel.

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