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By September end, Warren Buffett's Berkshire Hathaway had amassed an astounding $157 billion in cash, Treasury bills, and other liquid assets, marking a notable $50 billion surge within 12 months.

According to Steve Hanke, as quoted on Business Insider, Berkshire Hathaway’s increasing cash reserves indicate the possibility that ‘The Oracle of Oklahoma’ is bracing for a projected economic downturn or even a recession, waiting to strategically take advantage of the slump.
 

Hanke’s View of Berkshire’s Cash Build

As quoted in the Business Insider article, Hanke believes that Buffett's amassed cash reserve positions him favorably to acquire undervalued stocks and businesses during an economic downturn. Warren Buffet tactically invested around $21 billion within 18 months during the financial crisis, securing profitable deals with Goldman Sachs, General Electric, Mars, Dow Chemical, and Swiss Re.

Moreover, Hanke believes that Warren Buffett can lend money at appealing rates, all while securing a solid, risk-free return through higher bond yields during the waiting period. Berkshire generated around $4 billion in interest, dividend, and investment income, in the previous quarter. Berkshire’s Treasury returns were also boosted by the Fed hiking its interest rates.
 

Deutsche Bank Predicts a Mild Recession in Early 2024

In their outlook report, Deutsche Bank economists estimate a 175 basis point reduction in interest rates next year, suggesting that the Fed will take a dovish stance, cutting interest rates aggressively surpassing market expectations, according to Reuters.

Economists at Deutsche Bank expect a mild recession in the first half of 2024, stemming from the U.S. economy consecutively contracting in the first two quarters of 2024 and weakening economic indicators.

However, even with projecting a “mild recession” in the first half of 2024, Deutsche Bank estimates that the S&P 500 Index will surge nearly 12% by the end of next year, ending 2024 at 5,100 points. According to an article in Reuters, the bank expects corporate earnings to remain robust even in the face of an economic slump in early 2024.

According to EY, the probability of the U.S. economy sliding into a recession in 2024 is around 50%. However, the economy is expected to experience tailwinds from non-inflationary growth driven by a strong labor market, a resilient consumer base, and enhanced productivity.
 

ETFs in Focus

Although Berkshire Hathaway’s increasing cash reserves and Deutsche Bank projections indicate the possibility of an economic slump in the first half of 2024, economic growth toward the end of next year can be expected.

According to Barrons, S&P Global Ratings raised its outlook for economic growth in 2024. The ratings agency now forecasts the U.S. economy to grow 1.5% in the coming year on an annual average basis, up from 1.3% which was previously expected.

Investors can look at the below-mentioned funds and hedge themselves from the possibilities of an economic slump by increasing their exposure to the mentioned sectors.
 

Consumer Staples Sector

Consumer Staples Select Sector SPDR Fund (XLP)

The sector includes food and beverages, household and personal products among other essential products used by a consumer. It is considered a defensive industry and may play its part in helping to withstand a recession. These products see steady demand even during an economic downturn due to their low level of correlation with economic cycles.

Consumer Staples Select Sector SPDR Fund has a basket of 38 securities and has amassed an asset base of $15.62 billion. The fund charges an annual fee of 0.10% while having a dividend yield of 2.68%.

Consumer Staples Select Sector SPDR Fund has an exposure of 98.92% in large-cap securities proving further security and has allocated about 68.58% of its assets to consumer non-durables.
 

Healthcare Sector

Health Care Select Sector SPDR ETF (XLV)

The healthcare sector is non-cyclical in nature, providing a defensive tilt to the portfolio amid market turmoil. Further, the long-term fundamentals remain strong, given encouraging industry trends.

Health Care Select Sector SPDR ETF has a basket of 64 securities and has gathered an asset base of $36.58 billion. The fund charges an annual fee of 0.10%.

Health Care Select Sector SPDR ETF has an exposure of 97.63% in large-cap securities proving further security.
 

Utility Sector

Utilities Select Sector SPDR Fund (XLU)

Being a low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus, considered a defensive investment or a safe haven amid economic or political turmoil.

Utilities Select Sector SPDR Fund has a basket of 30 securities and has gathered an asset base of $13.61 billion. The fund charges an annual fee of 0.10% while having a dividend yield of 3.37%.

Utilities Select Sector SPDR Fund has an exposure of 92.79% in large-cap securities proving further security and has allocated about 65.64% of its asset to electric utilities.

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