iShares Core U.S. Aggregate Bond ETFNYSE American: AGG

These ETFs provide different types of income.

We love to celebrate ETF milestones at VettaFi, whether it is a well-established ETF hitting an even higher round number or newer products proving that age is not a factor. Last week, the first U.S.-listed ETF, the SPDR S&P 500 ETF (SPY), crossed a new threshold.

For some people, the early days of the fourth calendar quarter is a good time for reflection. In life and certainly in portfolios.

U.S. equity markets extended gains to a fourth-straight week despite a resurgence in benchmark interest rates after a critical slate of employment data showed surprisingly strong labor market trends. One of several strong employment reports, Nonfarm Payrolls data showed that the U.S. economy added 254k jobs in September - the strongest in six months and well above consensus estimates. Combined with a nearly 10% surge in crude oil prices driven by renewed Middle East tensions, markets reflected a significantly less aggressive Fed rate cut path in the months ahead.

The ongoing debate on whether the economy will face a recession or achieve a soft landing continues, with mixed opinions from experts. Despite my longstanding recession prediction, the economic expansion has been extended due to delayed deployment of pandemic-era savings. Tariffs have not benefited American manufacturing, leading to higher input costs, disrupted supply chains, and a slump in manufacturing jobs and output.

ETFs across various categories pulled in $8.6 billion in capital last week, with U.S. fixed-income ETFs leading the way.

Given the recent market volatility, investors have been flocking to bonds. With the expectation of rate cuts to come and subsequently falling yields, fixed income investors can complement their current core exposure with the NEOS Enhanced Income Aggregate Bond ETF (BNDI).

Fixed income ETFs continue to gain traction globally. As of August 2024, the asset category managed $2.5 trillion in assets, with iShares managing $1 trillion alone.

Longer-term Treasury and corporate bond rates may have already seen most of their decline, even though Fed Funds rate cuts haven't started. AGG has gained from falling rates in the past year, but capital appreciation could be limited going forward. Monthly dividends also look set to peak in the next year after increasing since 2022.