Happy Sunday!

It was another week where the data continues to move in the wrong direction and the markets continue their sell-off… at least in the United States. The White House may become the financial market’s biggest enemy.

What We're Talking About This Week!

• Quick Hits For The Week Ahead

• Dividend Landscape

• 5 To Watch

• Looking Ahead

Quick Hits For The Week Ahead

Among the major events that took place last week:

• The Atlanta Fed forecasts -2.4% GDP in Q1

• Trump pivots from “tariffs for politics” to “tariffs as policy” and back again

• The DOGE layoffs don’t have a major impact on the labor market

• Large-cap Value begins to lead this market and the money starts to follow

Does recession risk need to be factored back in for 2025?

TL:DR - Not yet, but it can’t be written off completely either.

Look, the U.S. economy is heading in the wrong direction. Retail sales are slowing. Activity in the services sector has slowed substantially (contracting by some measures, still expanding by others). Tariffs are damaging consumer sentiment, not to mention creating an inflationary pulse for the economy. DOGE layoffs are beginning to create cracks in the labor market, although more in jobless claims than the unemployment rate. High yield spreads have moved to 5-month highs and now the Atlanta Fed’s Q1 GDP forecast is at -2.4%.

The Q1 GDP estimate might not be as bad as it looks since the big driver has been net exports. This was likely heavily influenced by U.S. companies rushing to import foreign goods before they could potentially be hit by the Trump tariffs. Perhaps we’ll see that balance out again in Q2 as reciprocal tariffs by the U.S. and its trade partners take effect. Either way, tariffs will eventually be stagflationary - inflation will rise, growth will slow - the longer this trade war goes on. The dollar is pricing it in. The Fed Funds futures market is pricing it in. Consumer and investor sentiment are already showing it. The only thing left is for it to officially show up in the economic measures, which will take some time to flow through. For the record, I don’t think Q1 GDP will come in as low as -2.4%, but I do think we’re going to see a significant slowdown from past 2-3% growth rates.

Investors need to begin preparing themselves for the possibility of recession now.

The mood is very risk-off

There’s no question that the markets have turned firmly defensive, although it’s happened in waves. Gold has been rallying for months. U.S. equities started turning risk-off about two months ago. International stocks started outperforming roughly a month ago and Treasuries have really accelerated only in the past couple weeks, although last week was a step backwards.

Regardless of when they started moving, they’re all moving together now. As evidence of how much the market has broadened in 2025, nine of the 11 S&P sectors are positive year-to-date despite the S&P 500 being down 1.7% on the year. The two losers - consumer discretionary and technology - the latter of which is down more than 8%.

One of the strongest signs of the current negative sentiment in U.S. equities is the leadership of healthcare.

After underperforming the S&P 500 for two years almost uninterrupted, healthcare has made a big comeback in 2025. This is important because healthcare has very consistently been a leader in market corrections and is giving the signal again now. With value, low volatility, dividends and consumer staples all showing strong leadership, defense is very clearly in control

The markets haven’t handled tariffs very well

I was about to write last week that the market had been handled tariffs OK despite the negative long-term effects if they’re sustained. Not any more.

Last week, the markets had their worst week of the year. Growth, high beta and momentum were all down at least 5%. Airlines were down 6%. Banks were down more than 8%. The fact that tariffs are being implemented right now may not be as problematic for the markets as much as the uncertainty surrounding them. They’ve been stopped, started and delayed so often that no one knows what to think and no one knows how to plan. The calculus is changing on nearly a daily basis and it’s difficult to think at this point that the White House had or has any plan at all when it comes to tariffs.

The markets hate uncertainty and that may be causing volatility more than anything at the moment.

Dividend Landscape

Dividend stocks may have taken a little extra time to get going relative to the S&P 500, but they’re rolling now.

Dividend growth and high yield strategies have both been outperforming, the former due to the leadership from defensive sectors and the latter due to cyclicals hanging on here (although strength has been bifurcated lately).

The SPDR S&P Dividend ETF (SDY), which combines dividend growth and high yield components, is one ETF I’ve been watching closely. It has really struggled to get going for a while, but it’s been hitting on all cylinders over the past two weeks. I’m happy to see this fund finally participating since I like its strategy and it remains one of my favorite dividend plays for this market.

5 To Watch

Let’s take a look at a handful of ETFs worth highlighting for the week ahead.

iShares MSCI Europe Financials ETF (EUFN)

Ever since Europe swung back into favor, it’s been off to the races for EUFN, now outperforming the Financials Select SPDR ETF (XLF) by a staggering 23% so far in 2025. The economic recovery in the Eurozone, while tepid and fragile, has still created optimism. Germany’s recent announcement that it plans to drop a liquidity bomb on its economy will certainly help.

VanEck Morningstar Wide Moat ETF (MOAT)

Investing in companies with a wide moat has traditionally been a solid long-term strategy, but it’s just been miserable lately. Last week was one of the first good weeks it’s had this year relative to the S&P 500, but it’s not been a good year for MOAT. Perhaps even worse for investors, it often hasn’t behaved the way it’s expected to given market conditions. The added uncertainty has most definitely been a negative.

JPMorgan Ultra Short Income ETF (JPST)

Even as bond yields fall and long-term Treasuries have begun looking attractive again, it’s ultra-short bonds, especially T-bills, that continue to draw investor money. JPST, even though it invests mostly in corporates and ABS, is one of the best in the business, combining low costs, solid historical performance and a 4.5% yield.

Vanguard Mid-Cap Value ETF (VOE)

Value stocks have made a big comeback in 2025 as investors steer away from premium valuations and towards a little more safety. Large cap value has begun drawing in investor money over the past couple weeks (which usually happens as people performance chase). Mid cap value, an often neglected segment of the market, has been doing quite well itself over the past few weeks and has become the 2nd best performing group in the Morningstar style box.

First Trust Nasdaq Food & Beverage ETF (FTXG)

Of all the market’s sub-sectors and themes, this one has the best relative strength at the moment. Food & beverage is boring on its best days and downright avoidable on its worst, but it’s made a big comeback as investors continue to pivot towards defense. Sometimes boring can be sexy!

Looking Ahead

Looking better for: Japanese yen, high dividend yield

Looking worse for: dollar, semiconductors, junk bonds

If you have any more thoughts, feel free to jump into the comments below!