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Consider Mid-Cap ETFs to Navigate Market Upheavals

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The Federal Reserve is prepared to further tighten the monetary policy to tame the high inflation levels. However, the Fed’s hawkish stance is taken positively by the market participants. The Dow Jones Industrial Average went up 1.6% on May 26. The other two broad market indices, the S&P 500 and the Nasdaq composite, also inched up 2% and 2.7%, respectively, on the same day.

The recently released Fed minutes from the May 3-4 meeting highlighted that the central bank officials are ready to move ahead with several 50-basis point interest rate hikes to control the red-hot inflation readings. Notably, the minutes mentioned that “Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings,” as stated in a CNBC article. The Federal Open Market Committee members recently highlighted in a meeting that “a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook,” according to a CNBC article.

As the Russia-Ukraine tension continues, rising commodity prices and fears of further disruptions in global supply-chain distributions might stoke higher inflation. Also, as the Federal Reserve has high chances of increasing the rates, market participants are apprehensive about the U.S. economy slipping into a stagflation due to high-interest rates and steep inflation.

Considering the hawkish Fed stance and high-inflation levels, the Wall Street is expected to keep bearing the brunt. According to a CNBC article, Deutsche Bank estimated that the S&P 500 could decline to 3,000 if the U.S. economy enters into a recession.

Per the latest Labor Department report, the Consumer Price Index (CPI) jumped 8.3% year over year in April, surpassing the already high Dow Jones estimate of an 8.1% rise. The metric, however, compared favorably with the 8.5% rise (the maximum since December 1981) in March.

The core inflation index, which excludes volatile components, such as food and energy prices, rose 6.2% year over year, beating the expectations of a 6% rise. The rising inflation levels dashed the hopes of inflation peaking in March.

The latest disappointing preliminary consumer sentiment readings for early May are bearing the brunt of persistently high inflation levels. The University of Michigan’s preliminary consumer sentiment declined 9.4% from the prior-month level to 59.1 in early May (the lowest reading since August 2011). The metric lagged the market forecast of the index coming in at 64, per a Reuters’ poll.

However, certain U.S. economic data releases have been encouraging so far. The Department of Commerce reported that retail sales in April were up 0.9% month over month, below the consensus estimate of 1%. Year over year, retail sales grew 8.2% in April. The Federal Reserve reported that industrial production increased 1.1% in April, well above the consensus estimate of 0.5%.

Mid-Cap ETFs to Consider

Considering the mixed sentiments, mid-cap funds are gaining attention as they provide both growth and stability compared to their small-cap and large-cap counterparts. Investors who seek to capitalize on the strong fundamentals but are worried about uncertainty should consider mid-cap ETFs. Below, we presented five popular mid-cap funds:

Vanguard Mid-Cap ETF VO

Vanguard Mid-Cap ETF seeks to track the performance of the CRSP US Mid Cap Index, which measures the investment return of mid-capitalization stocks. VO has an AUM of $49.37 billion. Vanguard Mid-Cap ETF charges a fee of 4 basis points (bps).

SPDR S&P MIDCAP 400 ETF Trust MDY

SPDR S&P MIDCAP 400 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P MidCap 400 Index. MDY has an AUM of $18.02 billion. SPDR S&P MIDCAP 400 ETF Trust charges a fee of 22 bps (see: all the Mid Cap ETFs here).

iShares Russell Mid-Cap Value ETF IWS

iShares Russell Mid-Cap Value ETF provides exposure to mid-sized U.S. companies that are thought to be undervalued by the market, relative to comparable companies, and tracks the Russell MidCap Value Index. IWS has an AUM of $13.47 billion and charges a fee of 23 bps.

Schwab U.S. Mid-Cap ETF SCHM

Schwab U.S. Mid-Cap ETF’s goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Mid-Cap Total Stock Market Index. SCHM has an AUM of $8.98 billion and charges a fee of 4 bps.


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SPDR S&P MidCap 400 ETF (MDY): ETF Research Reports
 
Schwab U.S. MidCap ETF (SCHM): ETF Research Reports
 
iShares Russell MidCap Value ETF (IWS): ETF Research Reports
 
Vanguard MidCap ETF (VO): ETF Research Reports
 
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