Is Recession in the Cards?

by: , Chief Investment Officer and Managing Director | IndexIQ

There’s a saying that recessions don’t just happen; they’re the result of policy mistakes. There are differing opinions about the policy steps currently being taken with respect to trade and the Fed’s actions. This is causing market volatility and has economists worried, and more and more are predicting the possibility of recession between now and the end of 2020.

Still, nothing is inevitable. In the U.S., the economic data has been mixed. Manufacturing is weak here, as it has been around the globe, but consumer spending and wage growth have been strong. Central banks around the world have been moving to cut rates. Zooming out from the day to day tweets and headlines, trade talks with China are still largely grinding forward and, with the election looming next year, the Trump Administration has every reason to try to find a resolution. All this may allow the economy to continue to expand, albeit at a slower rate.

Still, there are plenty of cross-currents. International investors have seen their returns negatively impacted by the apparently relentless climb of the dollar. Income investors are seeing the rate of return on their bonds decline as the Fed cuts rates and fixed income yields decline. As all of this unfolds, time-tested factor-based and liquid alternative strategies can help address some of these challenges.

In bonds, a momentum-driven approach may help identify the fixed income instruments most likely to outperform in these circumstances and weight the portfolio holdings accordingly. In international equities, a 50% hedged position, such as IQ 50 Percent Hedged FTSE International ETF*, can help soften the dramatic, often unpredictable, moves in currencies as central banks cut rates. For the broad market, liquid alts can help manage volatility and add non-correlated assets to an equity portfolio. Low volatility strategies are another option. (The IQ S&P High Yield Low Volatility Bond ETF* – HYLV – is one ETF of note that pursues this strategy, while also seeking to provide income.)

None of these are guaranteed protection against a market downturn sparked by a recession, if and when one comes. And the nature of the recession matters, too. But whatever else the future holds, the current expansion is getting on in age and is, by some measures, the longest in modern history. This suggests that we’re likely closer to the end than to the beginning. That being the case, it may be time to consider positioning your portfolio more defensively in anticipation of slowing growth.

*Click on the fund name for the most current fund page, which includes, the prospectus, investment objectives, performance, risk, and other important information. Returns represent past performance which is no guarantee of future results. Current performance may be lower or higher. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Visit nylinvestments.com/etfs and nylinvestments.com/funds and for the most recent month-end performance.

There is no assurance that the investments objectives can be met.

About risk
There are risks involved with investing in any such products, including the possible loss of principal. Investors in the Funds should be willing to accept a high degree of volatility and the possibility of significant losses.

Past performance is no guarantee of future results, which will vary. All investments are subject to market risk and will fluctuate in value.

This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

This material contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

Hedged: A hedge is an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security.

Momentum investing: A strategy to capitalize on the continuance of an existing market trend. It involves going long stocks, futures or market ETFs showing upward-trending prices and short the respective assets with downward-trending prices.

The S&P 500 Index is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE, NASDAQ, or the Cboe BZX Exchange.

“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. IndexIQ® is an indirect wholly owned subsidiary of New York Life Investment Management Holdings LLC and serves as the advisor to the IndexIQ ETFs. ALPS Distributors, Inc. (ALPS) is the principal underwriter of the ETFs. NYLIFE Distributors LLC is a distributor of the ETFs. NYLIFE Distributors LLC is located at 30 Hudson Street, Jersey City, NJ 07302. ALPS Distributors, Inc. is not affiliated with NYLIFE Distributors LLC. NYLIFE Distributors LLC is a Member FINRA/SIPC.

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Salvatore J. Bruno

Chief Investment Officer and Managing Director | IndexIQ

Sal is Chief Investment Officer at IndexIQ, where his primary responsibility includes developing and maintaining the firm’s investment strategies. Sal joined IndexIQ in 2007 from Deutsche Asset Management (DeAM) where he held a number of senior positions

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