Market Volatility Deepens as Fed Holds Rates Steady: 3 Funds to Buy

Given this backdrop, investors may consider large-cap value funds, such as Vanguard Equity Income Fund VEIPX, Northern Income Equity NOIEX and Federated Hermes MDT Large Cap Value Svc FSTKX.

Fed Holds Rates Steady

The Federal Reserve kept its benchmark interest rate unchanged within the 3.5-3.75% range at the end of its FOMC meeting on Wednesday. While the move was widely expected, investors are increasingly worried that the central bank may not be acting aggressively enough to contain inflation.

Markets reacted sharply to the announcement. The Dow plunged 1,153.18 points, marking its biggest single-day loss since April 2025. Meanwhile, bond yields climbed, with the benchmark 10-year Treasury yield rising 7 basis points to 4.67%.

Inflation showed signs of cooling in June after oil prices declined following a temporary memorandum of understanding between the United States and Iran that paused hostilities. The consumer price index slowed to 3.5% in June, beating expectations of 3.8% and improving from May's 4.2% reading.

However, renewed conflict earlier this month pushed oil prices higher once again. Although crude has pulled back slightly in recent days, persistent geopolitical tensions could reignite inflationary pressures.

Meanwhile, technology stocks have remained under strain as investors question whether heavy spending on artificial intelligence infrastructure, particularly massive investments in data centers by major tech companies, can be sustained.

Concerns have also been compounded by signs of a cooling labor market. The Conference Board reported Tuesday that consumer confidence fell to 90.8 in July, adding to fears that economic momentum is fading. Together, these factors suggest market volatility could persist in the near term.

3 Best Choices

We've identified three large-cap value mutual funds that have given impressive annualized returns over 3-year and 5-year periods. These funds also hold a Zacks Mutual Fund Rank of #1 (Strong Buy), require an initial investment of no more than $5,000 and have a low expense ratio.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Vanguard Equity Income Fund seeks a high level of dividend income and long-term growth of income and capital. VEIPX invests in a diversified group of large and mid-capitalization stocks with above-average dividend yields and reasonable prospects for long-term price appreciation. 

VEIPX’s 3-year and 5-year annualized returns are 15.9% and 11.2%, respectively. Vanguard Equity Income Fund has an annual expense ratio of 0.26%.

To see how this fund performed compared to its category, and other 1 and 2 (Buy) Ranked Mutual Funds, please click here.

Northern Income Equity fund seeks to provide a high level of current income with long-term capital appreciation as a secondary objective. NOIEX’s approach is to identify the securities of companies that generate high current yields and offer prospects for growth and possible capital appreciation.

NOIEX’s 3-year and 5-year annualized returns are 20.9% and 13.7%, respectively. Northern Income Equity fund has an annual expense ratio of 0.48%, which is lower than its category average.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Federated Hermes MDT Large Cap Value Svc fund's investment objective is to provide growth of income and capital. FSTKX pursues its investment objective by investing primarily in equity securities of companies that are generally leaders in their industries, are characterized by sound management and have the ability to finance expected growth.

FSTKX’s 3-year and 5-year annualized returns are 22.2% and 14.3%, respectively. Federated Hermes MDT Large Cap Value Svc fund has an annual expense ratio of 0.99%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

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This article originally published on Zacks Investment Research (zacks.com).

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