The FOMC meeting ended yesterday, with members predicting an annual inflation rate of 4.2% by the end of the year. 3.4% was the forecast in June, with 2% being the long-term target. In times of inflation, dividends can be used as a hedge.
Although the Fed admits inflation is higher than expected, Fed Chairman Jerome Powell has expressed confidence. “These bottleneck effects have been larger and longer lasting than expected,” said Powell. “While these supply effects are significant at this time, they will lessen. And as they do, inflation should fall back towards our longer-term target. “
Despite assurances from the Fed, uncertainty abounds
There are a number of upsetting signs that the market could be heading for trouble. An August 2021 employment report showed that only 235,000 jobs were added, far behind the 750,000 forecast. The US economy is expected to grow only 5.9% this year, a substantial drop from the projection of 7% just three months ago. A debate on the debt ceiling and the uncertain future of the infrastructure bill could also impact the markets. Although Evergrande has not shaken the markets as much as initially feared, the situation suggests that the global economy remains precarious.
The current pandemic is also at play. “The trajectory of the economy will depend significantly on the evolution of the virus,” the Fed said in a statement. “Advances in immunization are likely to continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain. “
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Dividend ETFs That Can Overcome Market Uncertainty
When economic waters are rough, dividend growth companies can be a life jacket. Here are three dividend growth ETFs that could help your portfolio float in troubled waters.
- The SmartETFs dividend generator AND F (DIV) focuses on quality companies that generate moderate income and consistent dividend growth which, importantly, exceeds inflation. Only half of DIVS ‘weighting is allocated to US companies, the other half of their exposure being in other markets. DIV prioritizes companies with tidy cash flow and balance sheets over flashy, high-yielding numbers. Moreover, as an actively managed fund, it is well suited to the moment.
- The Vanguard dividend appreciation AND F (VIG ) a $ 65.99 billion AT M. It provides exposure to large cap companies primarily oriented towards consumer staples, healthcare and industrials. Only companies that have more than 10 years of dividend growth are included in the fund. It charges six basis points.
- The IShares Core Dividend Growth AND F (DGRO ) tracks the Morningstar Dividend Growth Index and provides low-cost exposure to U.S. dividend growth stocks. This fund can be a basic income generator, and its holdings include dividend growth commodities such as Exxon Mobil (XOM), Johnson & Johnson (JNJ) and Microsoft (MSFT).
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