Wall Street has endured a sharp market downturn amid ongoing tariff disputes, rising inflation and heightening recession fears. Volatility is likely to persist in the near term as uncertainty lingers over President Trump’s trade policies and a slowing economy.
Such a scenario has raised the demand for cash-like ETFs (or ultra short-term bonds ETFs). These ETFs have attracted more than $16 billion this year. iShares 0-3 Month Treasury Bond ETF SGOV has been leading with more than $7 billion in inflows, including a record $1.4 billion last week. SPDR Bloomberg 1-3 Month T-Bill ETF BIL gathered $3.2 billion this year, with half of that amount coming in last week. JPMorgan Ultra-Short Income ETF JPST saw inflows of $3 billion this year.
These funds invest in ultra-short-term bonds and help investors keep aside money for a couple of weeks to a few months with almost no risk. In times of market downturns, these can act as a hedge, protecting the portfolio from significant losses. Unlike equities or longer-duration bonds, the value of cash-like ETFs is less likely to be affected by market turbulence, making them a reliable option during uncertain times.
Instead of keeping excess cash idle in a low-yield bank account, investing in a cash-like ETF can enhance returns while maintaining liquidity.
Traders are betting that the U.S. economy has lost steam and is on the verge of sliding toward a recession. The surveys and sentiment indicators in recent weeks have been soft, underscoring the ongoing weakness in the economy. The tariffs will raise prices for U.S. consumers and dampen economic growth (read: 5 Defensive ETF Strategies to Follow Amid Market Meltdown).
PIMCO CEO Mohamed El-Erian told Yahoo Finance that he now sees a 25% to 30% chance of the U.S. economy entering into recession this year, up from a 10% chance seen before the Trump tariff bonanza began. Betting markets are pricing in an increasing chance of the U.S. economy entering a recession. Polymarket places the odds of a U.S. recession being officially called by year-end at roughly 40% as of Monday, up from a 23% chance as of Feb. 27.
Further, many Wall Street analysts have raised concerns about stagflation, where growth stagnates, inflation remains high and unemployment rises. JPMorgan (JPM), Goldman Sachs (GS) and Morgan Stanley (MS) have reduced their respective economic growth targets, citing the anticipated effects of restrictive trade and immigration policies. JPMorgan model recently pegged the probability of an economic downturn at 31%, while Goldman flagged rising recession risks.
Moreover, the rate cuts bet resurfaced as early as June as the yields on two-year Treasury bonds dropped sharply. During such times of turmoil, investors tend to turn to less volatile and lower-risk assets like fast-maturing bonds.