Got Recession Worries? Quality ETF Investing Could Help

A recent FactSet report indicates heightened recession concerns among S&P 500 companies, with 121 members mentioning "recession" on Q1 2025 earnings calls, a significant increase from only 13 in Q4 2024. This has led to increased interest in quality stocks, particularly within defensive sectors like utilities, healthcare, and consumer staples, as highlighted by American Century Investments. The American Century U.S. Quality Growth ETF (QGRO), which invests in mid and large-cap companies with strong balance sheets, has outperformed the Russell 1000 Growth Index by 6% over the last twelve months, driven partly by its allocation to the healthcare sector.

Analysis

A recent FactSet report reveals a significant uptick in recessionary discussions among S&P 500 companies, with 121 firms citing the term 'recession' during their Q1 2025 earnings calls conducted between March 15th and May 15th. This figure marks a substantial increase from the mere 13 companies that discussed recessions on their Q4 2024 earnings calls and represents the highest number of such mentions since Q4 2022, signaling heightened macroeconomic concern within corporate leadership. While this increased frequency of recession talk does not definitively confirm an imminent downturn, it indicates that top U.S. companies are more frequently considering and discussing potential economic slowdowns. In light of these growing concerns, American Century Investments suggests that 'quality stocks'—defined by higher profitability and robust balance sheets, often found in defensive sectors like utilities, healthcare, and consumer staples—could offer attractive potential. The American Century U.S. Quality Growth ETF (QGRO) is presented as an investment vehicle aligned with this strategy, focusing on mid and large-cap companies with strong balance sheets and long-term growth potential, with a notable allocation to the healthcare sector. As of April 30th, 2025, QGRO has demonstrated strong performance, achieving a return of over 22% over the last twelve months, thereby outperforming the Russell 1000 Growth Index by approximately 6% over the same period. It is noted that VettaFi is the index provider for QGRO and receives a licensing fee, but is not the issuer or sponsor. The general market sentiment is described as 'mixed' with a 'cautious' tone, and the market impact score of 0.55 suggests a moderate level of market sensitivity to these developments.

Key Decisions for Investors

• Investors should closely monitor upcoming corporate earnings releases and leading economic indicators for further evidence of recessionary pressures, given the sharp increase in S&P 500 companies acknowledging this risk.
• Consider strategically increasing exposure to quality-oriented equity strategies, focusing on companies with strong fundamentals and those in traditionally defensive sectors, as a potential risk mitigation approach in a slowing economic environment.
• Evaluate investment options such as the American Century U.S. Quality Growth ETF (QGRO), which targets quality growth and has shown recent outperformance, while ensuring any investment aligns with individual risk tolerance and portfolio objectives, especially considering the prevailing cautious market sentiment.