The market is divided between views on the true health of the U.S. economy. Mostly, investors are becoming more certain that the economy will avoid a recession in 2023. However, some remain skeptical about whether the economy can avoid a recession next year.
Inflation levels have shown a consistent decline in recent months, but remain above the Fed’s benchmark level. Coupled with the potential for future Fed rate hikes in 2023, these factors contribute to an atmosphere of uncertainty surrounding the state of the economy.
Difficult Economic Conditions
According to Forbes, the Fed’s recent projections suggest that a recession in 2023 is unlikely. However, the extended rate hike approach adopted by the Fed might hinder economic growth. Even if the United States manages to evade a recession in 2023, the forceful monetary policy pursued by the Fed over the past 18 months could now be causing adverse effects on the economy.
Moreover, the banking crisis has led to tight credit conditions, and historically high interest rates are placing pressure on corporate profits and overall economic expansion.
What Lies Ahead?
In early August, according to Reuters, JP Morgan said that it is no longer expecting the U.S. economy to enter into a recession in 2023 and forecast that the economy will expand at a strong and steady growth rate.
Bank of America followed suit and curbed its projections of a likely recession this year, increasing their growth forecast for the country, as per a Reuters article, early last month. The brokerage firm has revised its outlook and no longer anticipates a mild recession in 2024.
Investors with a long-term investment horizon and a bullish outlook on the economy should not be worried even if the economy enters a mild recession in 2024. According to Forbes, historically recession tends to be of a brief duration, with the recession following World War 2 lasting around 11 months. Another notable example of the short duration of U.S. recession is the Covid-19 recession in early 2020, which lasted only two months.
Although, an economic slowdown does bring about job losses and other financial challenges, they prove to be excellent buying opportunities for long-term investors. Investors employing a long-term strategy like “buy and hold strategy” tend to benefit by buying high-quality stocks at low prices. They enjoy the benefits once the downturn subsides.
ETFs in Focus
Investors with a long-term focus, don’t have to worry about the downswings of the market. We highlight the following ETFs that investors with a long-time horizon can benefit from, without worrying about a recession.
Vanguard S&P 500 ETF (VOO)
If you’re looking to invest in the U.S. stock market for the years ahead, investing in a broad market ETF like Vanguard S&P 500 ETF, can be your preferred choice. While the SPDR S&P 500 ETF SPY is widely known and serves as an alternative to the Vanguard S&P 500 ETF, VOO stands out due to its more appealing cost structure. VOO charges a low annual fee of 0.03% and has amassed a huge asset base of $331.04 billion.
According to a Reuters article, in late July, Citigroup raised its outlook for the market index, forecasting it to reach levels of 5,000 points in 2024, making the fund an attractive investment option for the long term.
Vanguard Growth ETF (VUG)
Vanguard Growth ETF seeks to track the performance of large-cap growth equity stocks. The fund is one the largest options in growth ETFs with an asset base of $91.55 billion and charges a low annual fee of 0.04%, making it an appealing choice.
Vanguard Growth ETF has allocations to companies like Apple, Microsoft and Amazon, having a share of 13.50%, 11.49% and 5.36%, respectively. For investors with a long-term horizon, the upside potential of growth equities make VUG a preferred option. The fund has gained 36% year to date and 20.70% over the past year (as of Aug 30).
Vanguard Information Technology ETF (VGT)
Vanguard Information Technology ETF tracks securities in the information technology sector. Amidst the current wave of optimism, fueled by the artificial intelligence (AI) enthusiasm and Nvidia’s success, investing in technology is a potential gamechanger. Analysts foresee a trillion-dollar spending budget over the next decade.
Vanguard Information Technology ETF charges a low annual fee of 0.10% and has gathered an asset base of $51.83 billion. The fund has allocations to companies like Apple, Microsoft and NVIDIA NVDA, having a share of 22.72%, 19.74% and 4.48%, respectively.
Investors can also look at AI ETFs like Global X Robotics & Artificial Intelligence ETF BOTZ, which invests in firms poised to gain from rising robotics and AI adoption.
Vanguard Total Bond Market ETF (BND)
Vanguard Total Bond Market ETF seeks to track the performance of the Bloomberg U.S. Aggregate Float Adjusted Index. For investors with a long-term time frame, BND offers a well-diversified option with a dividend yield of 2.90%. With the Fed turning hawkish and increasing the likelihood of elevated interest rates, BND tends to gain further.
Vanguard Total Bond Market ETF has an average duration of 6.5 years, along with a yield to maturity of 4.83%. BND has amassed an asset base of $94.06 billion and charges an annual fee of 0.03%, delivering a massive portfolio at a comparatively low cost.
SPDR Portfolio S&P 500 High Dividend ETF (SPYD)
SPDR Portfolio S&P 500 High Dividend ETF tracks the performance of the S&P 500 High Dividend Index, designed to measure the performance of the top 80 dividend-paying securities listed on the S&P 500 Index. With the recent economic uncertainties, investing in SPYD can prove to be a smart choice, as it provides a steady source of income regardless of prevailing market conditions. Investing in a high-dividend paying ETF over the long term can help investors to achieve attractive total returns.
SPDR Portfolio S&P 500 High Dividend ETF has a dividend yield of 4.77%, beating the benchmark U.S. 10 Year Treasury yield of 4.12% (as of Aug 30). The fund charges a low annual fee of 0.07% and has a Zacks ETF Rank #2 (Buy).
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This article originally appeared on Zacks
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