Top institutional investors entered 2019 with lowered expectations for the United States economy. The “sugar rush” from U.S. tax reform was expected to wear off and firms like Goldman Sachs have forecast a significant pullback in earnings growth in comparison to the record profits we saw in 2018.
Does this mean investors should shy away from the iShares Dow Jones US Financials ETF (NYSE:IYF)? The ETF has climbed 5.5% in 2019 as of close on January 23. Indexes in the U.S. and Canada have experienced a nice rebound to start the year, but there are persistent warnings of economic storm clouds on the horizon. The ETF has already managed to recoup its losses from 2018.
JPMorgan Chase CEO Jamie Dimon has expressed concern that a multitude of developments, including the ongoing political warfare in Washington, could lead to a minor pullback or a full-blown recession. Ray Dalio, founder of Bridgewater Associates, has said that he fears the possibility of a recession in 2020.
In late December, the U.S. Federal Reserve slashed its growth forecast for the U.S. economy. It cuts its estimate to 2.3% growth for 2019, down from its earlier estimate of 2.5% Gross Domestic Product growth. Markets have responded well to the dovish tone U.S. Fed chairman Jerome Powell has struck in recent statements.
The early rebound is positive for investors who were holding on tight in late 2018 but adding a financials-focused ETF is a risky proposition in today’s market. Earnings growth at major U.S. firms will experience a sharp pullback this year which will likely be bad news for equities.
