VettaFi Voices On: The Odds of Avoiding a Recession

Hey VettaFi Voices, the question this week is “Have we avoided recession?” There are differing opinions all around, but some reputable sources like Goldman Sachs are saying it’s increasingly unlikely. Yet the Fed is going to be raising rates further, from what it looks like, because inflation is higher than they want. And many have warned that continuing to raise rates risks sparking a recession. What do the VettaFi Voices think about the matter?

Todd Rosenbluth, VettaFi director of research: I’m not the best reader of economic tea leaves, but investors seem to still expect moderate growth based on my initial glance of some ETF flows. For the past month, the low-cost core equity ETFs, like the iShares Core S&P 500 ETF (IVV), the Vanguard S&P 500 ETF (VOO), and the Vanguard Total Stock Market ETF (VTI), have led the way.

But the iShares MSCI USA Quality Factor ETF (QUAL) added $860M and the Pacer US Cash Cows 100 ETF (COWZ) pulled in $550M. High quality ETFs are focused on companies with strong free cash flow, consistent earnings, and strong balance sheets. These tend to better during periods of moderate growth and not a recession. I would think more defensive ETFs like low-volatility ones or high-dividend ones would be gaining traction if a recession was more imminent.

But there’s still fear out there. The SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) is the most popular bond ETF and you can’t get shorter in duration than this ETF. The WisdomTree Floating Rate Treasury Fund (USFR) also gathered over $800 million with the floating rate as a major appeal.

So there’s concerns about rates potentially climbing higher or investors are looking for safety given the strong yield,