- The Atlanta Fed forecasted that the economy could slow in Q1.
- President Trump was asked about the possibility of a recession over the weekend.
- Here are 2 ETFs that should hold up well in a recession.
These ETFs are built to perform well during a market downturn.
Recently, the Federal Reserve Bank of Atlanta’s GDP modeling indicator, GDP Now, forecasted that there would be negative economic growth in Q1. Specifically, as of March 6, it said the GDP would be -2.4% in the first quarter. That would be down from 2.3% GDP in Q4 and 2.8% for all of 2024.
It would also be the first quarter of negative GDP since the second quarter of 2022, when the GDP was -0.6%. It would be the worst quarter since Q2 2020 when the economy crashed due to COVID. Depending on the sources, a recession is defined as either two or three consecutive quarters with negative GDP.
Keep in mind, the Atlanta Fed forecast is just that, a forecast. We won’t know the real GDP until April. And between now and the end of March, the projections for Q1 could change.
But the possibility of a recession is real. On Sunday, when asked by Fox News if he is expecting a recession this year, President Donald Trump did not say no.
“I hate to predict things like that,” Trump told Bartiromo, reported Fox News. “There is a period of transition, because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing …It takes a little time, but I think it should be great for us.”
With that in mind, investors should be preparing their portfolio for a potential slowdown. Here are 2 ETFs that could outperform in a recession.
1. Invesco S&P Ultra Dividend Revenue ETF
During recessions, dividend stocks and ETFs are good choices because investments that produce dividends are usually from stable, value-oriented companies. These types of companies typically perform well in economic downturns. Also, the dividends they generate can be invested back into the fund or stock to boost the return.
The Invesco S&P Ultra Dividend Revenue ETF (NYSE:RDIV) is a great dividend ETF that outperformed the market with a 7% return in 2022 — the last recessionary bear market. That year, the S&P 500 fell 19% and the Nasdaq dropped more than 30%.
It invests in dividend-paying large- and mid-caps stocks within the S&P 900, with screens for the 60 stocks that pay the highest dividend yields. And those 60 stocks are weighted by those with the highest revenue generation, favoring stocks that have the most momentum at any given time.
The results speak for themselves. Along with the 7% return in 2022, it has a one-year return of 15% and a five-year annualized return of 13.3%. It is up about 3% YTD this year. It did not perform as well during the 2020 recession, down 9%, but that was an unusual set of circumstances as many companies were forced to suspend their dividends.
Along with dividend stocks, another broad category to consider during recessions or slowdowns are consumer staples. Consumer staples are just that, items that are staples for consumers no matter what the economy is, like household goods, food and beverages, healthcare services, utilities, etc.
The iShares US Consumer Staples ETF (NYSE:IYK) is among the best in its class. This ETF has returned almost 12% YTD and has a one-year return of 11%. In the last recession year of 2022, this ETF returned about 4% and in the 2020 pandemic recession it gained 32%. It has a five-year annualized return of about 12.7%.
The ETF tracks the consumer staples stocks within the Russell 1000 index. It screens for companies whose businesses tend to be less sensitive to economic cycles and whose customers’ purchasing habits are non-cyclical in nature. It also employs certain caps so that the fund remains well diversified.
The top holdings include Procter & Gamble (NYSE:PG), Philip Morris (NYSE:PM), and Coca-Cola (NYSE:KO).