The Fed Just Raised Interest Rates: These 2 ETFs Could Be the Smartest Buys Right Now

The article highlights a 2026 policy reversal: the Fed raised interest rates in September after markets had expected one or two cuts, and CME FedWatch traders anticipate another increase in October. It presents ProShares Equities for Rising Rates ETF (EQRR), up 31% year to date, and iShares Core High Dividend ETF (HDV), up 16% YTD, as portfolio options for a higher-rate environment. EQRR was flat in 2022 while the S&P 500 fell 19%, while HDV gained 7%, supporting their use as potential defensive allocations during rate-driven equity volatility.

Analysis

The proposed ETFs are not clean duration hedges: their apparent rate sensitivity is largely a cyclical factor bundle dominated by refiners, energy and financials. MPC and VLO benefit if higher yields reflect resilient nominal growth and sustained crack spreads, but both can underperform sharply if rates rise because inflation reaccelerates and demand rolls over. EQRR's quarterly correlation-based rebalancing also creates a backward-looking momentum exposure; ZS is a particularly incongruous top holding because long-duration software multiples remain vulnerable if real yields, rather than merely nominal yields, continue higher.

The more actionable implication is dispersion within defensives. HDV's oil-heavy exposure can protect nominal earnings, while ABBV provides lower economic sensitivity and idiosyncratic pipeline/cash-flow support; however, its dividend screen can become a value trap if the Treasury yield rise is rapid enough to force relative-yield repricing. Over the next 1-3 months, the key catalyst is whether inflation expectations and real yields diverge: breakeven-led moves favor XOM/CVX and refiners, while real-yield-led moves favor shorts in expensive software and pressure dividend ETFs broadly.

Consensus is likely over-extrapolating a single policy shift into a persistent hiking cycle. A restrictive policy error would flatten or invert the curve, compress refinery demand expectations and turn the apparent rising-rate winners into late-cycle cyclicals. The relevant 6-18 month structural beneficiary is CME: higher rates and policy uncertainty raise futures, options and Treasury-market hedging activity without requiring a directional rates call, although this requires confirmation in average daily volume and open interest rather than relying on FedWatch positioning.

Key Decisions for Investors

• Prefer a 1-3 month long CME / short ZS pair over buying EQRR: CME monetizes rate-volatility and hedging volumes, while ZS remains exposed to real-yield-driven multiple compression. Size for roughly 2:1 upside/downside; exit if 10-year real yields decline materially for two consecutive weeks or CME volume growth fails to inflect.
• Use MPC and VLO as tactical, not strategic, rate exposure: initiate only on evidence that crack spreads remain firm alongside rising 5y5y inflation expectations. Take profits into a 10-15% move; stop if gasoline demand data weaken or crack spreads contract materially, since recessionary rate increases reverse the thesis quickly.
• For defensive income exposure, favor ABBV over HDV for the next 3-6 months: the single-name route avoids HDV's concentrated oil-beta and provides a more differentiated earnings stream. Reassess if Treasury yields rise faster than expected and ABBV's relative dividend premium compresses versus the 10-year.
• Do not add broad rising-rate ETF exposure after strong trailing returns without checking current sector weights, valuation and liquidity. Set an alert for a curve-flattening move: if 2s10s narrows materially while yields rise, reduce energy/refiner longs and rotate toward CME or cash rather than assuming historical ETF correlations persist.