Disinflation Talk Grows, Rate Hike Bets Plummet: Top 5 ETFs Rallying On CPI Miss

The disinflationary trend continued in July, even though the annual CPI inflation rate saw a slight increase from 3% to 3.2% last month, breaking a streak of 12 consecutive months of decline.

The low base effect from a year ago is to blame, but what matters for investors is that the inflation rate came in a tad lower than the expected 3.3%.

Even more crucial is the fall in core inflation, which excludes energy and food items, and is closely monitored by the Fed to assess monetary policy, down to 4.7% year-on-year, below both the previous and the anticipated 4.8%.

Traders wasted no time in updating their expectations for future interest rates, solidifying the belief that the Fed will keep rates unchanged in September.

According to the CME Group FedWatch tool, investors are currently assigning a probability of over 90% to a scenario where rates remain on hold in September, up from 82% just a week ago. The likelihood of no further rate increases by the November meeting stands at 70%.

This shift in rate expectations has revitalized the markets and risk assets, which had experienced days of sustained volatility over the past few weeks.

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5 ETFs Rallying After CPI Data Release

1. Invesco QQQ Trust QQQ: This ETF, which tracks the Nasdaq 100 Index, saw a 1.2% increase at 10:40 a.m. ET. Sirius XM Holdings SIRI, was among the top beneficiaries due to the lower-than-expected inflation print in July, rising 4.9%.
2. ARK Innovation ETF ARKK: Cathie Wood‘s flagship fund, ARKK, rose 1.1% on Thursday following the CPI data release. The rally was fueled by reduced expectations of interest rates, particularly benefiting high-tech industries. The best-performing component of the ARKK ETF was Verve Therapeutics, Inc. VERV which surged by 5%.
3. Consumer Discretionary Select Sector SPDR Fund XLY: Stocks in the consumer discretionary sector rallied by 1.3%. Notably, Tesla Inc. TSLA stood out as the top performer within this sector, showing a 3.2% increase.
4. iShares Biotechnology ETF IBB: Biotech stocks recorded a 1.4% gain. The most notable industry performer was MacroGenics, Inc., MGNX which experienced a substantial 16% increase on the day.
5. iShares Expanded Tech-Software Sector ETF IGV: In response to the inflation data, software stocks emerged as the leading gainers, propelling the IGV ETF 1.6% higher. The standout name within this ETF was AppLovin Corp. APP, which rose by 23%.

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