SGOV: The Labor Market May Weaken In 2025 While Inflation Rebounds
- SGOV is only a good investment if we can safely assume its yield will be above the inflation rate, which has been the case since 2022.
- The market is bracing for a total 50-75 bps rate cut over the next year, which seems likely given low and falling hiring rates, pointing toward a sustained unemployment increase.
- Geopolitical risks and potential tariffs could increase inflation, particularly in goods, while service inflation remains elevated due to shortages in skilled jobs.
- Given historical precedence and the last jumbo rate cut, I expect significant inflationary monetary and fiscal stimulus in response to a further increase in unemployment.
- Investors may be best shifting toward inflation-indexed bonds like VTIP, which should outperform inflation, while SGOV appears likely to underperform it in 2025-2026.
Richard Drury
My most prominent portfolio position has been short-term government debt for the better part of two years. Although short-term Treasury bills like the ones held in the iShares 0-3 Month Treasury Bond ETF (NYSEARCA:SGOV) have not had the same
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