Wary of Market Complacency? ETF Strategies to Play

JPMorgan Chase CEO Jamie Dimon expressed concerns over extreme market complacency amid trade de-escalation. Speaking at JPMorgan’s annual Investor Day in Manhattan, Dimon remarked that investors’ rapid recovery from recent losses reflects “an extraordinary amount of complacency,” as quoted on Yahoo Finance.

Note that the S&P 500 has gained 15.6% over the past month (as of May 19, 2025), even after slipping into a correction territory in April.

Macro and Trade Concerns: Inflation, Stagflation and Tariffs

Dimon was more direct when discussing macroeconomic threats. He warned that inflation and the risk of stagflation remain underestimated. He believes the risk of stagflation is “probably two times” what markets currently expect.

Michael Feroli, J.P. Morgan’s chief U.S. economist, recently said in a note to clients that the recession outlook is “still elevated, but now below 50%,” as quoted on CNBC (read: 5 Factors to Play Defensive Now: ETFs in Focus).

Dimon also flagged geopolitical tensions. He criticized the lingering effects of tariffs imposed during the Trump administration. Though some tariffs have been paused, a baseline 10% reciprocal tariff still applies broadly, along with sector-specific duties, which Dimon sees as “pretty extreme.”

Citigroup Echoes Warnings on Tariffs

Meanwhile, Citigroup CEO Jane Fraser added her own cautionary note in a blog post, stating that “uncertainty remains” due to the evolving global trade landscape, as quoted on Yahoo Finance. Companies are holding off on investments, hiring and preparing for the likely ripple effects from tariffs.

Walmart Warns of Rising Prices Amid Tariffs

Walmart WMT revealed in its quarterly report that rising tariffs will likely force the company to hike prices, as it can no longer absorb the added costs. CFO John David Rainey stated that some price increases could reach double digits and will begin impacting consumers later this month.

Retail sales saw a significant slowdown in April, rising only marginally—a sharp contrast to the consumer spending surge seen in March prior to the imposition of new tariffs (read: 3 ETF Areas to Win Amid Slowing Retail Sales in April).

Signs of a Slowdown in Investment Banking

JPMorgan disclosed that its investment banking fees are expected to fall by “mid-teens plus or minus” in the second quarter compared to the same period last year. This decline reflects a slower pace of dealmaking.

Meanwhile, trading revenues are projected to increase in the “high single digits,” according to Troy Rohrbaugh, co-CEO of the commercial and investment bank.

Tariff Risks Still in Play

There is a growing concern that the thaw in trade tensions and easing inflation may be misunderstood. Its golden effects would fade out soon.A growing number of Federal Reserve officials have signaled lately that interest rate cuts are likely to remain on hold until at least September, due to ongoing trade-related uncertainty.

ETF Strategies to Play

Below, we highlight a few exchange-traded fund (ETF) strategies that can be relied upon if you think market complacency is high in markets.

Tap Short-Term Government Bonds  

Try short-term government bonds, which have a lower interest rate and default risks, but yields high with the Fed being less dovish.

Vanguard Short-Term Treasury ETF VGSH yields 4.18% annually. TIPS ETFs are also great plays if you fear inflation risks. Vanguard Short-Term Inflation-Protected Securities ETF VTIP, which yields 2.78% annually, can be played as the segment offers protection against high inflation.

Time for Low-Volatility ETFs?

Low-volatility ETFs have the potential to outpace the broader market in an uncertain environment, providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to defensive sectors that usually have a higher distribution yield than the broader markets.

 iShares MSCI USA Min Vol Factor ETF USMV and Invesco S&P 500 Low Volatility ETF SPLV are two such examples.

Dividend Growth ETFs & High-Dividend, Low-Volatility ETFs

Companies that have the willingness and ability to pay and grow their dividend over time are called dividend aristocrats. Such activities make them quality picks. U.S.-based dividend growth ETFs include SPDR S&P Dividend ETF SDY, which charges 35 bps in fees and yields 2.55% annually.            

Invesco S&P 500 High Dividend Low Volatility ETF SPHD is a winning combination of high dividend and low volatility — the need of the hour. The S&P 500 Low Volatility High Dividend Index comprises 50 securities traded on the S&P 500 Index that have historically offered high dividend yields and low volatility. It yields 3.38% annually.

Play Quality ETFs

No wonder such a volatile environment calls for quality investments. SPDR MSCI USA StrategicFactors ETF QUS measures the equity market performance of large and mid-cap companies across the U.S. equity market. It aims to represent the performance of a combination of three factors: value, quality, and low volatility. The ETF QUS gained 12.2% over the past month (as of May 19, 2025).

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This article originally published on Zacks Investment Research (zacks.com).

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