Category: Economic news

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Geopolitical Risks and ETFs for diversification

Geopolitical risks—whether from armed conflict, trade disputes, sanctions, or shifting alliances—can quickly ripple through global markets. For investors, the challenge is not predicting every headline, but building portfolios resilient enough to withstand them. Exchange-traded funds (ETFs) offer a practical and efficient way to manage these risks through diversification, liquidity, and targeted exposure to major economic sectors.

As Geopolitical Risks rise, ETFs may offer opportunities for diversification.
As Geopolitical Risks rise, ETFs may offer opportunities for diversification.

Energy and Financial Sectors

Sector ETFs, in particular, allow investors to adjust allocations in response to evolving geopolitical conditions. For example, during periods of conflict or supply disruption, energy prices often rise. An ETF like the Energy Select Sector SPDR Fund (XLE) provides diversified exposure to major U.S. energy producers and services firms. Rather than betting on a single oil company, investors gain broad participation in the sector. ETFs like this help reduce company-specific risk while maintaining exposure to a potential geopolitical tailwind.

Financials also react differently depending on the nature of the crisis. Rising defense spending or inflationary pressures may boost interest rates, supporting bank profitability. The Financial Select Sector SPDR Fund (XLF) offers diversified access to large U.S. banks, insurers, and capital markets firms. In contrast, sanctions or global slowdowns can pressure multinational lenders, underscoring why diversified sector exposure from ETFs is preferable to concentrated stock positions.

Other Sector ETFs

Technology presents a more nuanced case. Heightened tensions—particularly between major economies—can disrupt semiconductor supply chains and global trade. Yet long-term digital transformation often continues regardless of short-term instability. The Technology Select Sector SPDR Fund (XLK) spreads exposure across hardware, software, and IT services leaders, balancing cyclical and structural growth drivers.

Beyond these sectors, investors can use utilities, healthcare, consumer staples, or defense-focused ETFs to dampen volatility further. Defensive sectors such as the Utilities Select Sector SPDR Fund (XLU) and the Consumer Staples Select Sector SPDR Fund (XLP) often hold up during uncertainty because demand remains relatively stable.

Conclusions of ETF investing to manage geopolitical risks

Ultimately, ETFs help address geopolitical risk not by eliminating volatility, but by potentially reducing it through diversification into key sectors. Their transparency, intraday liquidity, and broad diversification allow investors to rebalance efficiently as conditions evolve. In a world where geopolitical shocks can emerge overnight, sector ETFs provide a flexible toolkit for navigating uncertainty without abandoning long-term investment discipline.

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Gold and Silver as Safe Haven? Volatility is Back

Investors often turn to gold and silver in times of macroeconomic uncertainty. Market participants often view these precious metals as traditional “safe haven” assets that preserve value when equities falter or inflation worries spike. In early 2026, this narrative took center stage. Both metals surged to multi-year highs amid geopolitical tensions, a soft U.S. dollar, and rising inflation expectations. However, the last week of January 2026 brought a stark reminder that even safe havens can experience intense volatility. In this post, we view this risk through the lens of liquid instruments in exchange-traded funds (ETFs).

📊 Glimpse at GLD & SLV Performance

GLD and SLV are two ETFs that track the spot price performance of gold and silver. SPDR Gold Shares (GLD) is the largest gold ETF. It is widely used to proxy gold price exposure. Similarly, iShares Silver Trust (SLV) is the premier silver ETF, reflecting broader investor positioning in silver. Over the week ending January 31, both ETFs experienced sharp swings. GLD dipped from recent highs, while SLV posted even larger percentage moves. This dip reflected silver’s historically higher volatility and tendency to amplify market sentiment shifts.

📉 Late-January ETF Safe Haven Volatility

Data from the week of January 12–18 shows how sharply these assets have been moving.

  • GLD (Gold) demonstrated an intra-week range of about ~2.35 %. Its annualized volatility of ~13 % over this week indicated relatively contained swings for gold historically—even as spot prices rose.
  • SLV (Silver) exhibited an intra-week range above ~11.5%. Its annualized volatility above ~75 % over this week underscored silver’s tendency for much larger price oscillations.

In other words, silver’s volatility, especially in extreme market episodes, can be much more than that of gold, reinforcing the idea that SLV carries greater short-term risk for traders and investors alike.

📌 Historical Risk Metrics for a Safe Haven

Longer-term risk figures support this short-term pattern.

Gold and Silver as a safe haven? Volatility is back.
Gold, Silver, U.S. Stocks, and Aggregate Bond ETF performance over the last 12 months, as of January 30, 2026. Source: https://www.etfreplay.com/charts
  • Silver ETF SLV has historically shown higher volatility compared with gold ETFs, meaning silver prices tend to swing harder and more often than gold when markets shift sentiment or macro drivers change.
  • Gold ETF GLD’s lower volatility has often made it a preferred choice for risk-averse investors seeking stability.

🧠 What This Means for Investors

The late-January sell-offs and reversals — where precious metals retreated significantly after touching record highs — illustrate that safe-haven status doesn’t equate to smooth performance in every market environment. Sharp reversals driven by shifts in monetary policy expectations or risk appetite can quickly compress profits and widen losses, particularly for more volatile assets like silver.

In short, gold and silver may still play roles as portfolio diversifiers or long-term hedges — but recent prices in GLD and SLV remind us that volatility is very real, and risk metrics matter when evaluating these in a diversified portfolio.

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Using ETFs to understand recent activity in the US economy

The US economy continues to navigate a complex landscape. Recent events include fluctuating inflation, evolving labor market dynamics, and the Federal Reserve’s ongoing efforts to achieve price stability. While certain sectors have demonstrated resilience, others are showing signs of cooling, creating a mixed picture for ETF investors. And, reversing trends in globalization continues.

black blue and red graph illustration
Using ETFs to understand recent activity in the US economy
Source: Burak The Weekender on Pexels.com

Stock ETFs and the US Economy

The labor market, a pillar of strength for much of the past year, is showing subtle signs of moderation. While the unemployment rate remains low, job growth has slowed, and initial jobless claims have edged up slightly. This suggests a potential cooling in demand for labor, which could eventually help to ease wage pressures and contribute to lower inflation. Investors tracking the broad equity market through passively managed ETFs like IVV (iShares Core S&P 500 ETF) have witnessed the market’s sensitivity to these economic data points and the Fed’s reactions.

Bond ETFs

The bond market, as reflected in ETFs such as AGG (iShares Core U.S. Aggregate Bond ETF), has also experienced volatility. Rising interest rates have generally led to lower bond prices. But, expectations of future rate cuts can influence yields, prices, and investor sentiment. AGG, representing a broad basket of investment-grade US bonds, serves as a benchmark for overall bond market performance and investor risk appetite in fixed income.

In times of economic uncertainty, investors often turn to lower-risk assets. BIL (SPDR Bloomberg Barclays 1-3 Month T-Bill ETF), which invests in short-term US Treasury bills, can be seen as a safe haven. Increased flows into BIL may indicate a more risk-averse sentiment among investors, reflecting concerns about the economic outlook.

US Economic Direction

Overall, the recent state of economic activity in the US presents a nuanced picture. While inflation remains a concern and the labor market is showing signs of cooling, the economy has so far avoided a sharp downturn. The performance of passively managed ETFs like IVV, AGG, and BIL offers a glimpse into how investors are interpreting and acting on these economic signals. Continued monitoring of these ETFs will be crucial in understanding the trajectory of the US economy in the months ahead.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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2025 Mid-year Sector Review

Happy Independence Day from ETFMathGuy! Similar to what we posted at the halfway point of 2024, this post summarizes the mid-year sector review and ETF performance in 2025. Accordingly, we highlight some of the newest trends and identify the strongest and weakest sectors this year.

This post summarizes the mid-year sector review and ETF performance in 2025, and identify the strongest and weakest sectors this year.
Photo by Brett Sayles on Pexels.com

Review of the 11 Sectors of the S&P 500

Indeed, there are 11 sectors in the S&P 500, as shown below. Therefore, while some of these sectors have several ETFs tracking them, we have chosen the ETFs in parentheses due to their long-standing presence in the markets. In our analysis below, we also consider the S&P 500 Index ETF (ticker: IVV), and the tech-heavy Nasdaq ETF (ticker: QQQ).

  • Information Technology (XLK)
  • Health Care (XLV)
  • Financials (XLF)
  • Consumer Discretionary (XLY)
  • Communication Services (XTL)
  • Industrials (XLI)
  • Consumer Staples (XLP)
  • Energy (XLE)
  • Utilities (XLU)
  • Real Estate (IYR)
  • Materials (XLB)

Consequently, using this list and reinvesting dividends, our sector review reveals that some sectors had total returns that did very well in the first half of 2025. However, a couple of sectors, such as Health Care and Consumer Discretionary, lost value in the first half of 2025.

This post summarizes the mid-year sector review and ETF performance in 2025, and identify the strongest and weakest sectors this year.
2025 Mid-year review of S&P 500 sector ETFs. Total Returns. Source: https://www.etfreplay.com/charts.aspx

Analysis and Insights from our Sector Review

Outperformers occurred in six sectors, suggesting a strong cyclical comeback. Leading the way were Industrials, Communication Services, and Technology sectors. Moreover, we see that Financials, Materials, and Utilities also outperformed the S&P 500. Our sector review is in sharp contrast to the mid-year review from 2024 when only one sector (Technology) outperformed the S&P 500. These trends appear to be due to easing tariff fears, a resilient labor market, and expectations of rate cuts. It also shows that the outperformance occurred in both the growth and value sectors of the S&P 500.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs

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Globalization and International Stock ETFs

Globalization over the last several decades has increased the correlation between domestic and international stock ETF returns. In this post, we quantify how this relationship has recently changed, what may be contributing to this change, and what it means for ETF investors.

Correlation changing?

Correlation measures potential portfolio diversification benefits. A high correlation indicates that the prices of two assets move similarly to one another. For diversification benefits, portfolios should contain assets that do not exhibit high correlation with each other. We previously discussed the correlation between the S&P 500 and a wide variety of asset classes. Below, we show that there appears to be a recent downward trend in correlation between U.S. and international stocks.

90-day Correlation of Total Returns of International Stocks (VEA) against the S&P 500. Downward trending suggests a reduction in globalization.
90-day Correlation of Total Returns of International Stocks (VEA) against the S&P 500

Here, the short-term correlation between the total returns of the iShares Core S&P 500 ETF (ticker: IVV) and the Vanguard FTSE Developed Markets ETF (ticker: VEA) hit a recent low from its longer-term average. This reduction in correlation suggests that U.S. and international stock markets are moving more independently than in the past. Thus, there is the potential to offer enhanced diversification benefits for investors.

Tariffs and Globalization

The most likely explanation of lower correlations is the news of significant tariffs on imported goods to the U.S., and perhaps more broadly, due to different central bank policies and geopolitical factors. This new trend appears to be reversing much of the investments in globalization that led to a high correlation between domestic and international stock markets. However, since most of these investments take some time to go into effect, we shouldn’t expect a rapid shift in correlations between domestic and international stock markets. The longer and more significant the tariffs are, the greater the chance that globalization will decrease. For ETF investors, enhanced diversification from international stock market investments may offer greater risk reduction than it did previously.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
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How ETFs responded to tariffs in the news

Recent news about U.S. tariffs has impacted ETFs representing several asset classes. This post discusses both positive and negative market effects. We close with some historical perspectives to help ETF investors make educated decisions that are best for their situation.

Broad-based ETF recent performance

To see how recent tariff news has impacted several broad-based ETFs, we considered the following list.

  1. iShares Core S&P 500 ETF (ticker: IVV)
  2. iShares Core Total US Bond (ticker: AGG)
  3. SPDR 1-3 Month T-Bill ETF (ticker: BIL)
  4. iShares Barclays Long-Term Treasury (ticker: TLT)
  5. iShares MSCI EAFE (ticker: EFA)

The first ETF on this list tracks large-cap U.S. stocks. The second one follows intermediate-term U.S. treasuries and investment-grade corporate bonds. The third and fourth ETFs in our list consist entirely of short and long-term U.S. treasuries, respectively. The fifth and last ETF is an international stock ETF composed of “…developed-market securities based in Europe, Australia and the Far East“. The image above shows the total return of these ETFs for 2025.

Stock ETFs and tariffs

The sharpest downturns in the prices of ETFs due to recent announcements on tariffs appear to be in domestic and international stocks. However, since international stocks started the year stronger, they are currently at a small loss for the year. On the contrary, domestic stocks have produced a more significant negative return so far this year.

Bond ETFs and tariffs

Bond markets are typically less volatile than the stock market. In particular, short-term treasury bills returns largely follow the federal funds rate, as shown by the ticker BIL. But intermediate and long-term bond fund prices appear to have benefitted from the selloff in stocks, likely in a “flight to safety“. While investors holding bond ETFs now benefit from higher prices, yields on the underlying bonds are decreasing. If the yields decrease significantly enough, an inverted yield curve may result, which could be a sign of an economic recession. Time will tell if the leading indications of the market foreshadow such an economic downturn.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs

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2024 Year-end returns of broad index and sector ETFs

With 2024 officially over, it is a good time to reflect on 2024 equity ETF returns. Like our mid-year post from 2024, this post highlights the top and bottom-performing ETFs by sector. We’ve added the Nasdaq-100 ETF (ticker: QQQ) 2024 returns for comparison. We also discuss what themes likely contributed to this performance.

S&P 500 Sector Returns, S&P 500 and Nasdaq ETF total returns, 2024

Top and bottom-performing sector ETFs for 2024

As the chart above shows, communication services (ticker: XTL) was the top-performing sector ETF of 2024, with a nearly 35% return. This may be surprising, given it was the worst-performing sector ETF in the 1st half of 2024. It appears that this ETF’s exposure to artificial intelligence (AI) and data centers contributed significantly to its total return for 2024. The healthcare sector ETF (ticker: XLV) was the worst-performing sector of the S&P 500 index. Considered a more defensive sector, investors were not looking for this approach in 2024. However, lower prices in the healthcare sector, relative to other sectors in the S&P 500, may bode well for healthcare ETF investors in 2025.

The S&P 500 has another strong year in 2024

For ETF investors who selected the broad-based S&P 500 index (ticker: IVV), this was another strong year, with a total return of nearly 25%. The past two years have been the best returns for this broad-market index in the past 25 years. So, investors looking for a diversified equity ETF did well in 2023 and 2024 by investing in an S&P 500 index ETF.

S&P 500 Index performance since 1995. Source: WSJ.

2025 ETF Outlook

As we noted in previous outlooks at the start of the year, there is plenty of uncertainty going into 2025. With a new political party in the White House, and the Fed still considering the potential of future rate cuts, 2025 should be another challenging year for ETF investors.

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Business leaders are cautious

Business leaders and other corporate insiders aren’t as optimistic as others who are contributing to strong market returns for 2024. Also, according to InsiderSentiment.com, their index continues to track below the long-term average. So, this post examines other possible contributors to lower optimism among business leaders, like Warren Buffett, Jamie Dimon, and Jeff Bezos.

business leaders have low sentiment
Photo by energepic.com on Pexels.com

The fourth year of a presidential cycle

As we’ve written about previously, the four years of a presidential cycle can have very different market returns. So here, we’ve updated the table below from this previous article, and included the upper and lower 95% confidence limits.

Presidential YearAverage Return (%)95% Lower Limit (%)95% Upper Limit (%)
16.7-2.115.6
23.3-4.911.5
314.06.621.5
46.70.612.9
Average Returns of the S&P 500 from 1928 to 2024. Data Source: www.macrotrends.net

So far, with the S&P 500 up about 21% this year, we are well above the upper limit for the 4th year of the Biden administration. Consequently, this statistical analysis suggests markets may trend back to their long-term mean.

Other factors at play for investors and business leaders

Of course, there have been other factors influencing investors recently. For instance, the Federal Reserve recently reduced short-term interest rates by 0.5%. Also, the monthly jobs report was stronger than expected. Lastly, seasonal hiring appears to be picking up ahead of a potentially strong demand this holiday season. Whether these factors hold until the end of the year is uncertain. And, many expect the presidential election result may also impact future market performance, along with whether the port workers strike again in the early part of 2025. Thus, only time will tell how the market responds to these factors of uncertainty.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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Stock and bond ETFs reverse recent trends

Economic data on the rising unemployment rate and corporate missed earnings appear to have contributed to the recent reverse of the upward trend in stock ETFs. This post explores this and other recent trends by highlighting selected ETFs that passively track major stock and bond indices.

NASDAQ market correction

As this WSJ article recently highlighted, the NASDAQ (ticker: QQQ) is officially in “correction” territory now. We define a correction as when prices drop by more than 10% from a recent high. Missed expectations from major investments in Artificial Intelligence by tech leaders Microsoft and Alphabet may have contributed. Nevertheless, the S&P 500 index ETF (ticker: IVV) is still up over 12% year to date, as the chart below illustrates. While returns for these two stock ETFs are lower than their mid-year peak, they are still good relative to other markets, like bonds.

Recent trends in stock and bonds ETFs.
Stock ETFs recently started a downward trend, but bond ETFs started an upward trend.

Recent trends in Bond ETFs

Investors appear to be quickly moving away from stock ETFs and into bond ETFs. This so-called “flight to safety” is clear in the image above in the recent upward trends in bond ETFs. The intermediate-term bond ETF, iShares Core U.S. Aggregate Bond ETF(ticker: AGG), shows some of this new trend. This trend is amplified when a longer-term bond ETF, like iShares 20+ Year Treasury Bond ETF (ticker: TLT), is viewed.

What is next?

The Fed left short-term interest rates unchanged after meeting this past week. But, a rate cut is looking more likely, as inflation is down to 2.5% now, edging closer to the Fed’s target of 2%. The Fed’s next meeting is in September, so investors will be eagerly awaiting the outcome of this important meeting. In the meantime, investors may continue to invest in bond ETFs to potentially hedge any additional losses in stock ETFs.

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Utility ETFs outperforming

Returns of utility ETFs have been particularly strong over the past three months, exceeding the returns of the S&P 500 index ETF by over 10%. Our favorite WSJ writer mentioned this situation recently, along with some explanations. In this post, we explore other aspects worth considering with utility ETFs.

What is in a utility ETF?

Several ETFs focus their holdings on utility companies. The largest is the Utilities Select Sector SPDR Fund (ticker: XLU), which is over twice as large as the next largest utility ETF, the Vanguard Utilities ETF (ticker: VPU). But, these ETFs track two different indices. XLU tracks the S&P Utilities Select Sector Index, while VPU tracks the MSCI US Investable Market Utilities 25/50 Index. Consequently, XLU has 31 holdings, less than half of the 67 in VPU. However, examining the top ten holdings in each ETF reveals they are very similar. So, not surprisingly, the year-to-date returns for both of these ETFs are identical, at 12.25%.

Top Ten Holdings of the two largest Utility ETFs, as of May 31, 2024. Source: etf.com

What is driving energy demand?

As Jason Zweig’s noted in his recent article, Artificial Intelligence (AI) may be playing a role. Training AI models are very energy-intensive. And, as we’ve written about before, the largest companies in the S&P 500 are actively involved in AI development. But, Maria Pope, CEO of Portland General Electric, believes there are three big drivers increasing electricity demand in the U.S.

  • Manufacturing returning to the U.S.
  • Government support of semiconductor production.
  • Data centers and their need to train and run AI models.

Will this demand remain elevated for the foreseeable future? And, how will the markets respond? ETF investors should consider these points when evaluating sector ETFs like those focused on utilities.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs