ETF Market Signals Stagflation Fears as Inflation Heats Up
Volatility and Treasury ETFs climbed while tech and crypto funds tumbled after PCE data showed inflation rising beyond expectations.
The ETF market revealed a clear shift toward defensive positioning on Friday after inflation data came in higher than expected.
The pattern of ETF performance—with volatility, Treasuries and gold funds rising while growth and technology ETFs fell—suggests investors are increasingly concerned about potential stagflation, where inflation remains persistent despite slower economic growth.
The core personal consumption expenditures (PCE) price index rose 0.4% in February, above economists' 0.3% forecast, according to the Bureau of Economic Analysis. This pushed the 12-month inflation rate to 2.8%, exceeding the projected 2.7%.
Consumer spending increased 0.4%, below the forecast of 0.5%, while the personal saving rate reached 4.6%, its highest since June 2024, based on BEA data.
Data from etf.com showed defensive ETFs posting gains, with ProShares VIX Short-Term Futures ETF (VIXY) rising 9%, reflecting heightened market anxiety.
The broad market indices reflected the negative sentiment, with the Dow Jones Industrial Average dropping 716 points, or 1.7%. The S&P 500 fell 2%, while the Nasdaq Composite declined 2.7%.
Inflation Hedges Lead ETF Performance
Fixed-income ETFs climbed, with the PIMCO 25+ Year Zero Coupon US Treasury Index ETF (ZROZ) gaining 2.1% and the iShares 20+ Year Treasury Bond ETF (TLT) adding 1.4%, according to etf.com data.
The Utilities Select Sector SPDR Fund (XLU) rose 0.8%, while SPDR Gold Trust (GLD) increased 0.8%, the etf.com figures showed, indicating investor preference for traditionally safer assets.
Cryptocurrency ETFs faced steep declines, with the iShares Ethereum Trust (ETHA) dropping 6.7% and the iShares Bitcoin Trust (IBIT) falling 3.8%.
Growth and technology-focused funds also struggled, with ARK Innovation ETF (ARKK) declining 4.1%, while the VanEck Semiconductor ETF (SMH) fell 2.6%.
Consumer-related ETFs showed weakness, with the Consumer Discretionary Select Sector SPDR Fund (XLY) falling 3.1% and the SPDR S&P Retail ETF (XRT) decreasing 2.4%, the data revealed.
