Passive investors who want to avoid the risk of company-specific issues typically buy exchange-traded funds. They achieve diversification by investing in the index ETF.
On Wed., when the government reported inflation rising again, those ETFs fared poorly. Today, they will top the most actively traded stocks again.
The 20+ year Treasury Bond ETF (TLT) is the most sensitive to interest rates. Without interest rates set to fall soon, long-term bonds are less attractive. TLT stock fell by 2.2% on Wednesday and is down by 8.76% YTD.
The tech-heavy Nasdaq (QQQ) found support at its upward trend line and 50-day simple moving average. Still, if investors panic by selling the magnificent seven, such as Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), or Nvidia (NVDA), QQQ stock will risk falling below $400. It closed at $438.37.
The iShares Russell 2000 ETF (IWM), which represents small-cap firms, pierced below its 50-day SMA. $190 is the next support zone at the 200-day moving average. Prolonged inflation increases input costs, squeezing the profitability of small firms. In addition, high-interest rates increase borrowing costs.
Investors wary of risky small-cap stocks are likely to dump IWM stock and hold the S&P 500 ETF (SPY) instead.
Bonds that mature in one year or less have the best safety at this time. Chances are lower that interest rates fall in the next three months. That increases the attractiveness of 3-month T-bills.
