The moment the market has been waiting for all year has finally arrived. The Federal Reserve has begun cutting interest rates.
Not only has the rate cut cycle begun, but "it started with a bang.":https://www.forbes.com/sites/dereksaul/2024/09/18/fed-cuts-interest-rates-for-first-time-in-4-years-heres-what-it-means-for-you/ Defying the expectations of some analysts, Powell opted to start cuts at 50 basis points instead of the more modest 25-point cut.
Looking ahead, many Fed officials expect 25 basis point cuts at the November and December meetings as well. Trepidation exists in the labor market, but some analysts see the Fed’s dovish play as a sign that the fight against inflation is nearing its end.
“Until recently, the market believed in U.S. dollar exceptionalism and the idea that U.S. growth would outperform, and rates would stay higher than elsewhere. It’s now clear that the Fed will be cutting just as fast or more quickly than other G10 central banks,” said Adam Button, chief currency analyst at Forexlive, per Reuters.
“It’s a bold move, and I think history will judge it as the right one. The bond market is saying that the fight against inflation is won, and there’s room to take rates all the way down to 3% before the Fed has to pause and think,” he added.
With a more aggressive-than-expected rate cycle underway, investors should consider what this means for their portfolio. One risk-averse means of playing the rate regime would be to play an income strategy with good defensive potential.
Pairing Quality Equities With Option Income
Moments like these are when funds like the Natixis Gateway Quality Income ETF (GQI ) can really shine. The fund can offer investors a well-rounded blend of income, capital appreciation, and risk management.
GQI’s portfolio starts with a selection of high-quality equities with strong profitability, earnings quality, and cash flow generation. A quality-focused portfolio can steadily grow from rate cut momentum while weathering volatility risks the market could face.
This equity portfolio is paired with a robust option overlay to deliver income. About half of GQI’s options strategy is implemented with the equity portfolio, giving investors a mix of income and long-term value.
Heading into the rate-cut environment, GQI was already offering competitive yields to investors. As of September 17, 2024, the fund has a 30-day SEC yield of 9.66%.
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