ETFs: Cooling inflation data 'changed the tone' for risk assets, expert says

ETF Think Tank Director of Research Cinthia Murphy joins Yahoo Finance Live to discuss where ETF investors are shifting their focus towards, particularly as inflation starts to show signs of cooling.

Video transcript


RACHELLE AKUFFO: Today's CPI data bringing some relief with inflation cooling a bit from its peak in June. So what does that mean for investors? Well, for more, we turn now to the ETF Think Tank Director of Research, Cinthia Murphy, who joins us for this week's ETF Report brought to you by Invesco QQQ. Good to have you back, Cynthia. So in this environment, where are you seeing investors pouring into with ETFs?

CINTHIA MURPHY: You know, that's a great question, because it seems like the tone completely changed today. So up until yesterday, the story was all about hedging that risk, finding safety, and really preparing for what makes sense to be invested in if this really is a recession. Where today, you know, all it took was a little bit of good news in this inflation number that people perceived as positive to really change the tone. Today was all about growth, pack, risk, risk, risk as much as you can get.

So it's kind of interesting to see just how hungry investors have been for good news, and they took it and they ran with it. And today was all about the growth risk, and risk that we haven't really seen appetite for all year.

AKIKO FUJITA: Cinthia, there-- there's no other ETF that symbolizes risk more than Ark, right? We've been talking about it a lot because of the big pullback we've seen-- up more than 6% today. And sure, it's off of the economic data we got this morning. But, you know, in terms of strategy for those who maybe have been hit hard by some of these tech ETFs, is now really the time to get in?

CINTHIA MURPHY: I mean, that's the million dollar question, Akiko. In truth, I mean, Ark is really for the believers. And it's amazing that no matter what happens to that fund, no matter what Cathie Wood comes out and says, the followers are there. The investors are super sticky in this fund.

Now, just yesterday Cathie Wood was quoted as saying, "We are already in a recession, and we're going to be out of it by early next year." Well, if that's the case, then, you know, maybe people are ready to start bracing in for the bounce we're going to see in growth and tech and disruption, because these are the most beaten down parts of the market this year. But, you know, do you believe that?

I mean-- so, the inflation number was great today, relatively speaking, because we were expecting much worse-- in reality, it's still high. It's still affecting really sticky parts of the economy. And is it suggesting that the Fed all of a sudden is going to cut rates ahead? Absolutely not.

So it could be that this is a one-day bounce. It could be that it lasts a little bit longer. But I think that's what everybody wants to see. What we do know is that today, if you look at the VIX index, which really is that fear indicator of the S&P 500, it's down 10% as an index, which is a huge drop.

So, today everybody's feeling much better about taking on risk, about buying in funds like Ark, but one day doesn't make a trend. We'll have to see if this lasts seven days, 10 days, if it's here to stay, or if it's just going to be a one-day event.

RACHELLE AKUFFO: And speaking of risk, we're seeing, obviously, some of these crypto tokens rallying and some of these blockchain related stocks. But what is your take on investing on those in terms of ETFs?

CINTHIA MURPHY: So what's cool about the blockchain and the crypto ETF space, specifically, is that the number of funds is still growing in the segment. So like everything else related to crypto, related to disruption, to technology, they have been out of favor. These funds have been really beaten down. Market performance has been brutal on anything that touches the space this year.

But product innovation is still happening there. There's two new funds coming out into the space trying to offer different ways to access blockchain, different cryptocurrencies, the digital infrastructure. So, you know, what I think is interesting, does that tell you that as an industry we'll believe that there's potential here for growth and it's coming soon? Because it costs money to launch an ETF.

And if issuers are launching these funds now, it's because they think they can attract assets. They're only going to attract assets if these things are going to perform. So I'm really actually curious to see if this is the beginning of a new wave of growth in this segment, or if the market is going to keep punishing these stocks until we're out of the whole recession talk and rate hike phase.

AKIKO FUJITA: Cinthia, another type of ETF we've been watching really closely, probably a good measure of the risk appetite out there, and that is the single-stock ETFs that are leveraged bets against companies that are already highly volatile-- Tesla, Coinbase, just to name a few. What kind of influence are you seeing there, and how do you think investors should be playing this right now?

CINTHIA MURPHY: That's another really, really puzzling space right now, because that is all about risk. And it's about doubling down on risk, which has not been a theme we've-- a theme we've seen this year. You know, in terms of are these assets coming into these funds sticky, it's too soon to tell, but volume is there.

So investors are really using these ETFs to trade, whether they are really bullish on the stock or bearish on that stock, because you can do a bull or a bear play on a lot of these stocks. And-- but you know, they're-- they're meant as short-term tactical tools, so we see a lot of coming in and getting out very quickly of these things. So it's still kind of early on, but it's kind of fascinating that the riskiest type of ETF would come out at a time when risk has been so out of favor.

So it's kind of a fascinating move in the ETF world, but we keep seeing launches. Another eight launched yesterday, and there's several in registration. I think we've just starting scratching the surface. There are so many more to come, and they all offer different types of leverage you can-- you can use. So there will be a lot of hedging ahead, probably, with these things.

AKIKO FUJITA: Yeah, it is fascinating to see how quickly that has grown. Cinthia Murphy, ETF Think Tank Director of Research, appreciate the time today.