The Federal Reserve kicked off the new rate cycle era, infusing strong optimism into the stock market. The S&P 500 and the Dow Jones hit new all-time highs and topped 5,700 and 42,000 milestones, respectively, for the first time on Thursday. The S&P 500 and Dow Jones rose 1.7% and 1.3%, respectively. The Nasdaq Composite Index outperformed, rising 2.5%. 

While the gains were broad-based, the technology sector was the biggest gainer. We have highlighted five ETFs from the sector that were at the forefront of the Fed-induced rally. These are First Trust NASDAQ Semiconductor ETF FTXL, VanEck Vectors Semiconductor ETF SMH, Simplify Volt Robocar Disruption and Tech ETF VCAR, Roundhill Magnificent Seven ETF MAGS and Invesco DWA Technology Momentum ETF PTF.

Federal Reserve Chair Jerome Powell slashed interest rates by 50 bps after holding it at a 23-year high for 14 consecutive months since July 2023. This marked the first rate cut since 2020 to address slowing economic growth and showed greater confidence in the fact that inflation is moving sustainably toward the 2% target level (read: Fed Initiates Rate Cuts: Top-Ranked Growth ETFs to Buy).

The central bank projects two more rate cuts of 50 bps in its final two meetings this year, due in November and December. It indicates another 100 bps rate cut next year and a 50 bps cut in 2026, which means four rate cuts in 2025 and two in 2026.

Tech Sector Growth Prospects Bright

As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for further initiatives when interest rates are low. The rapid adoption of artificial intelligence (AI) is fueling growth in the sector. The expansion of AI applications holds the promise of ushering in fresh growth opportunities within the sector.

Further, cutting-edge technologies, including cloud computing, big data, the Internet of Things, wearables, VR headsets, drones, virtual reality, machine learning, digital communication, blockchain and 5G technology, will continue to drive the sector. Meanwhile, worldwide IT spending is expected to increase 8% year over year to $5.06 trillion this year, according to the latest forecast by Gartner. This will put worldwide IT spending on track to surpass $8 trillion well before the end of the decade. Higher spending across software, data center systems, IT services and semiconductors will provide another boost to the sector.

Let’s dig into the details of the abovementioned ETFs:    

First Trust Nasdaq Semiconductor ETF (FTXL) – Up 4.4%

First Trust Nasdaq Semiconductor ETF offers exposure to the most-liquid U.S. semiconductor securities based on volatility, value and growth by tracking the Nasdaq US Smart Semiconductor Index. FTXL holds 31 stocks in its basket. 

First Trust Nasdaq Semiconductor ETF has accumulated $1.4 billion in AUM. The average trading volume is light at around 51,000 shares and the expense ratio is 0.60%. FTXL has a Zacks ETF Rank #1 (Strong Buy).

VanEck Vectors Semiconductor ETF (SMH) – Up 4.3%

VanEck Vectors Semiconductor ETF offers exposure to companies involved in semiconductor production and equipment. It follows the MVIS US Listed Semiconductor 25 Index, which tracks the most liquid companies in the industry based on market capitalization and trading volume. VanEck Vectors Semiconductor ETF holds 26 stocks in its basket (read: Fed Initiates Rate Cuts: Top-Ranked Growth ETFs to Buy).  

VanEck Vectors Semiconductor ETF has managed assets worth $22 billion and charges 35 bps in annual fees and expenses. It trades in average daily volume of 9.3 million shares and has a Zacks ETF Rank #1.

Simplify Volt Robocar Disruption and Tech ETF (VCAR) – Up 4%

Simplify Volt Robocar Disruption and Tech ETF is an actively managed ETF seeking concentrated exposure to the leader of autonomous driving technology. It employs a call option overlay to seek boosts in performance during extreme moves up in Tesla while holding a tech index for diversification and put options as a hedge (see: all the Alternative Energy ETFs here). 

Simplify Volt Robocar Disruption and Tech ETF charges investors 0.95% in annual fees. It has accumulated $5.2 million in its asset base while trading in an average daily volume of 23,000 shares. 

Roundhill Magnificent Seven ETF (MAGS) – Up 3.7%

Roundhill Magnificent Seven ETF is the first-ever ETF that offers investors equal-weight exposure to the “Magnificent Seven” stocks. It has amassed $708.6 million in its asset base and charges 29 bps in fees per year. MAGS trades in an average daily volume of 686,000 shares.

Invesco DWA Technology Momentum ETF (PTF) – Up 3.7%

Invesco DWA Technology Momentum ETF offers exposure to 36 tech companies that are showing relative strength (momentum) by tracking the Dorsey Wright Technology Technical Leaders Index. Semiconductor & Equipment takes the largest share at 36.7%, followed by software (31.9%) and diversified telecom services (9.8%). 

Invesco DWA Technology Momentum ETF is relatively illiquid and unpopular, with AUM of $434.6 million. It charges 60 bps in annual fees and has a Zacks ETF Rank #1.