Hawkish Fed and AI Optimism Put XUS Investors at Crossroads

The iShares Core S&P 500 Index ETF (TSX:XUS) is a popular choice for Canadians looking to invest in the US market. With $9 billion in assets under management and a low expense ratio of around 0.10%, this fund offers unhedged Canadian-dollar exposure to the 500 largest US companies.

The AI narrative has been driving the S&P 500 through August, with enthusiasm for chipmakers, hyperscalers, and software leaders propelling the index higher. However, a hawkish Federal Reserve and rising interest rates have revived expectations of a September rate hike, which could negatively impact richly valued growth stocks.

XUS mirrors the S&P 500's composition, dominated by mega-cap technology and communication-services names, with top holdings concentrated in familiar giants like Microsoft and Apple. As an unhedged fund, its Canadian-dollar returns are affected by currency fluctuations, adding a second layer of risk to investors' portfolios.