According to new research from the MIT Sloan School of Management and State Street Associates, a recession could come as soon as the next six months. MIT researchers created an index comprised of four factors and then used a distance metric, the Mahalanobis distance, to determine how the current market conditions differ from prior recessions.
“The Mahalanobis distance was originally conceived to measure the statistical similarity of the values of a set of dimensions for a given skull to the average values of those dimensions for a chosen group of skulls,” researchers explained in a CNBC report.
With this principle as the foundation of their study, the researchers looked at monthly data from four market factors, including industrial production, nonfarm payrolls, stock market return and the slope of the yield curve. Utilzing this data, they measured the current relationship between the four factors and correlated historical data.
Despite their findings, it’s not dissuading other market experts who aren’t forecasting a recession this year.
“The fundamental backdrop is supportive, in our view, and the fallout from the outbreak is unlikely to hurt [economic]activity prints over the medium term,” said Mislav Matejka, JPMorgan’s head of global and European equity strategy. “Our call remains that one should not expect a US recession ahead of presidential elections.”
Low Volatility ETFs to Ponder
A forthcoming recession could certainly put markets on edge with heavy doses of volatility, which makes low-vol ETFs an option to ponder. A pair of low volatility ETFs with low expense ratios to consider– Invesco S&P 500 Low Volatility ETF (SPLV) and the Invesco S&P MidCap Low Volatility ETF (NYSEArca: XMLV).
SPLV seeks to track the investment results of the S&P 500 Low Volatility Index. Strictly in accordance with its guidelines and mandated procedures, the index provider selects 100 securities from the S&P 500 Index for inclusion in the underlying index that have the lowest realized volatility over the past 12 months as determined by S&P DJI.
As for XMLV, it seeks to track the investment results of the S&P MidCap 400 Low Volatility Index. Strictly in accordance with its procedures and mandated guidelines, the index provider selects for inclusion in the underlying index the 80 securities that it has determined have the lowest volatility over the past 12 months out of the 400 medium capitalization securities that are contained in the S&P MidCap 400 Index.
A few other ETFs to consider:
- iShares Edge MSCI Minimum Volatility USA ETF (USMV)
- iShares Edge MSCI Min Vol EAFE ETF (BATS: EFAV)
- iShares Edge MSCI EM Minimum Volatility UCITS ETF (BATS: EEMV)
For more market trends, visit ETF Trends.