Investors entered the year fearing the worst — rising rates and earnings doubt cast a recessionary pall over equities. Despite those dark portents, however, the market has kept plugging away, with the S&P 500 up 16.7% YTD. While that has buoyed the case for a so-called “soft landing,” investors and advisors may want to remain cautious. That soft landing could yet prove to be a mirage best navigated by active ETFs’ flexibility.
Entering late summer, investors grew more excited by the prospect of a “soft landing.” The Fed looked set to pause with inflation data steadily approaching their targets. At the same time, the economy mostly resisted the lagging impact of rate hikes on credit markets, putting up solid numbers. Maybe it’s just the September effect come home to roost, but the picture has grown much murkier since then.
Consider, for example, how rare it is to pull off a soft landing in the U.S. Economists predicted such soft landings before recessions in 1990, 2001, and 2007. What are the remaining challenges facing a soft landing outcome? Economic data has turned much more mixed since starting the summer. Real retail sales, a potent indicator of overall economic conditions, were down 1.2% year-over-year in August when adjusted for inflation.
Even if the Fed is finished with rate hikes – which is not guaranteed especially as inflation remains stubbornly above the central bank’s targets – the full impact of rate hikes may still not be fully felt for months, according to one advisor.
Soft Landing Doubts Prompt Active ETFs Swing?
These factors taken together may push investors to consider the merits of active ETFs. Active ETFs can navigate events like important data drops ably, while leaning on experienced management. Active investing can move more quickly than indexed approaches that rely on gathering an entire committee together, as well. Should the so-called soft landing fail to materialize, it may be worth keeping active strategies on the radar.
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