Traders Are Preparing for Stagflation by Investing in Safe-Haven ETFs

The U.S. economy is teetering on the edge of a perfect storm: stagnant growth, persistent inflation, and rising uncertainty. Welcome to the world of stagflation—a scenario where traders are increasingly turning to safe-haven ETFs to shield portfolios from turmoil. With inflation easing but stubbornly above targets, GDP growth slowing, and unemployment poised to rise, investors are betting on assets that can weather economic headwinds. Let’s dissect the data and strategies shaping this trend.

The Stagflation Reality: Economic Indicators Signal Trouble Ahead

The numbers paint a clear picture. As of early 2025, annual inflation had dipped to 2.4%, but core inflation (excluding food and energy) remained elevated at 2.8%. Meanwhile, GDP growth of 2.5% in Q1 2025 masks deeper risks: the Federal Reserve’s baseline scenario forecasts growth slowing to 2.1% by 2026, with unemployment projected to hit 4.3% by year-end. Add in tariff-driven supply chain disruptions and geopolitical tensions, and the stage is set for prolonged stagnation.

The Rise of Safe-Haven ETFs: Where Traders Are Putting Their Money

In this environment, traders are fleeing equities and flocking to defensive assets. The top performers? Commodity ETFs, short-term Treasury bonds, and sector-specific ETFs targeting utilities and healthcare. Let’s break down the winners and losers:

1. Gold ETFs: The Ultimate Crisis Hedge

Gold has long been the go-to asset during uncertainty, and 2025 is no exception. The SPDR Gold Shares (GLD) surged 15.3% year-to-date as of May 2025, outperforming the S&P 500 by over 17 percentage points. Its volatility? A mere 40% of equities’. Even better, gold’s correlation with stocks hit -0.35—a rare negative relationship that diversifies risk.

Why it works: Gold thrives in stagflation. It’s a hedge against inflation, geopolitical risks, and currency devaluation. BlackRock notes that during the 2023 banking crisis, gold rose 7.9% while equities plummeted 15%.

2. Short-Term Treasury ETFs: Safety with a Yield Boost

With the Fed expected to cut rates twice in 2025, short-term Treasuries offer a unique sweet spot: minimal interest-rate risk and higher yields than cash. The iShares Short Treasury Bond ETF (SHV) returned 0.7% YTD, while the Vanguard Short-Term Government Bond ETF (VGSH) gave 1.21%—all with near-zero default risk.

Why it works: These ETFs act as “cash substitutes” in portfolios, providing liquidity and ballast against equity volatility. Their ultra-short durations (under one year) insulate them from rising rates.

3. Utilities and Healthcare ETFs: Steady as She Goes

Defensive sectors shine in stagnation. The Utilities Select Sector SPDR Fund (XLU) rose 3.1% YTD, leveraging regulated revenue models and inflation-indexed rate hikes. Health Care Select Sector SPDR Fund (XLV) gained 7.7%, buoyed by stable demand for essentials like prescription drugs and health services.

Why it works: Utilities and healthcare are less sensitive to economic cycles. They offer dividends and pricing power, traits that outperform during slowdowns.

The Underperformers: Avoid These Stagflation Pitfalls

Not all safe-haven bets are winners. Agriculture ETFs like the Invesco DB Agriculture Fund (DBA) fell -1.5% YTD, crushed by tariff-induced input costs. Meanwhile, broad-market ETFs like the SPDR S&P 500 ETF Trust (SPY) dropped -1.57%, reflecting equity vulnerability to stagflationary pressures.

BlackRock’s Playbook: Positioning for the Worst—and the Best

BlackRock’s Q2 outlook underscores two key strategies:
1. Diversify beyond duration: Pair gold and short-term Treasuries with inflation-linked bonds (e.g., TIPS) and dividend-paying stocks in defensive sectors.
2. Granular investing: Target regions and sectors insulated from tariffs, like European credit or Japan’s yen (rated overweight for its safe-haven appeal).

Conclusion: Stagflation ETFs Are No Gamble—They’re Prudent Insurance

The data is clear: stagflation-resistant ETFs are not just a fad but a necessity. Gold ETFs like GLD (up 15.3% YTD) and short-term Treasuries (yielding 4.5%) offer asymmetric upside in a low-growth, high-inflation world. Utilities and healthcare ETFs add ballast, while BlackRock’s warnings about geopolitical fragmentation justify their inclusion.

Investors would be wise to allocate at least 15–20% of their portfolios to these assets. As the Fed’s hands grow tied—unable to cut rates aggressively without reigniting inflation—the path to preservation lies in diversification. Stagflation may be painful, but with the right ETFs, traders can turn uncertainty into opportunity.

The numbers don’t lie: safe-haven ETFs are the new gold standard in turbulent markets.