This Chart Suggests A Recession Is Coming, But It’s Not
For ETF investors, the important issue is not whether one recession signal flashes red or green in isolation, but how a portfolio is positioned if growth slows without a full contraction. In that kind of environment, broad market exposure can still work, but the mix of equities matters more than the headline index. ETFs built around quality, lower leverage, and consistent cash generation can behave differently from more cyclical or highly sensitive segments when sentiment turns choppy.
That makes index methodology worth checking before making a shift. Two funds in the same category may look similar on the surface but have very different exposures once sector weights, concentration, and rebalancing rules are considered. Investors often focus on the label, yet the real question is whether the ETF adds defensive balance or simply repackages the same market risk with a different wrapper.
Rate expectations also matter for ETF allocation decisions. If markets begin to price easier policy, duration-sensitive assets, dividend strategies, and rate-aware bond ETFs may all respond differently depending on how much of the move is driven by growth concerns versus inflation relief. That is why a portfolio review should look beyond โrisk onโ versus โrisk offโ and instead ask which exposures are likely to be most vulnerable if earnings, credit conditions, or unemployment trends weaken together.
The practical takeaway is discipline. Tactical changes are most useful when they are rules-based and tied to clear evidence, not a single report or a noisy market narrative. For long-term ETF portfolios, that usually means:
- reviewing concentration and sector overlap;
- testing whether the portfolio still matches the intended risk level;
- using rebalancing to reduce drift rather than chase headlines.
Finviz
For a change, I agree with Fed officials. The June jobs report was undoubtedly influenced by Hurricane Beryl in that the number of workers who could not work or were working part-time soared to five times the number we saw the previous month. I think the storm also adversely impacted hours worked and wages. We should see a snap back in those numbers when the next jobs report arrives. As for the increase in the number of continuing unemployment claims, which has been consistent the past few months, it is only back to pre-pandemic levels.
Bloomberg
I have preached ad nauseam that soft landings are balancing acts between just enough growth to prolong the expansion combined with just enough softness in the economic data to tame the elevated rate of inflation. It is no easy task for the Federal Reserve because its officials must not only ease off the brakes of restrictive monetary policy at just the right time, but also manage consumer and investor expectations about inflation and economic growth.
If consumers do not think the Fed will be successful in bringing the rate of price increases down, they run the risk of losing credibility. Consumers could recoil, employers would be forced to lay off workers, and the economy would run the risk of contraction. The same thing can happen if the Fed is too aggressive in its battle with inflation, and restrictive policy forces consumers to cut back, which would also lead to a deterioration in the labor market, feeding back into less spending and a recession. This is why most rate-hike cycles result in recessions. In fact, every recession followed a peak in the Fed Funds rate.
MarketWatch
Yet not every peak in the Fed Funds rate was followed by a recession, which is the situation I see in front of us now. Note the period from 1995 through 1998 in the chart above, which was arguably the last time we had a soft landing. That was a mid-cycle slowdown in the economy during the expansion from the early 1990s through 2000, and I think we are in the middle of a similar scenario today.
This outlook is even more controversial given that it is a contentious election year. Every high-frequency economic data point is likely to be scrutinized by both sides of the aisle with one assuming the worst and the other the best. The truth usually lies somewhere in between. If the weight of evidence in the data suggests an economic contraction is approaching, I intend to respond with another shift in investment strategy, but this time from offense to defense. We are not there yet.
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