Signs of Fatigue in Wall Street Rally? ETF Strategies to Follow

While the S&P 500 Index continues its march higher to new all-time highs in July, some undercurrents indicate that the rally might be losing steam, as quoted on Bloomberg. The S&P 500 has now gone 17 consecutive sessions without a 1% move in either direction — the longest period of calm since December.

According to Matt Maley, Chief Market Strategist at Miller Tabak & Co., this low-volatility streak is a sign of waning momentum following the powerful recovery from April’s tariff-led downturn, as quoted on Bloomberg. Some technical indicators also point to fading momentum.

Investors Grow Restless Amid Narrow Rally

While tech stocks have led the charge of the latest market rebound, broader market participation has been lacking. Maley noted that investors are becoming frustrated with the narrow scope of the rally.

Wall of Uncertainty: Earnings, Trade and Fed

Several factors may be contributing to the cautious mood. The earnings season has just begun, trade negotiations remain unsettled, and expectations are growing that the Federal Reserve won’t be cutting interest rates in the near term.

Aaron Nordvik of UBS Securities believes that the market’s positive momentum is beginning to fade, noting that July’s typical seasonal strength is no longer providing a strong tailwind. Most of the good news is baked in at the current price level, believes Nordvik, suggesting that the reward-to-risk profile has diminished in recent weeks, as quoted on Bloomberg.

Two of Mag 7 Earnings to Shape Market Fate This Week

This week could be a turning point. Tesla and Alphabet — two key members of the so-called "Magnificent Seven" megacap tech stocks — are set to report earnings on July 23, 2025. Their guidance, particularly regarding AI investments, will be closely watched.

So far, company earnings have been generally strong, but investor reactions have been muted. This suggests that much of the positive news may already be reflected in current valuations.

Low Volatility: A Sign of Strength or Complacency?

Market volatility remains subdued. The VIX, Wall Street’s fear gauge, is hovering near its lowest levels of the year. Some see this as a bullish sign as historically quiet markets tend to go higher.

ETF Strategies for Navigating a Dull Market

In this uncertain, stretched market environment, investors can consider the following exchange-traded fund (ETF) strategies to manage risk.

Combine Defense and Growth

While investors should not undermine the AI euphoria offered by Big Tech and stay invested in growth ETFs like Invesco QQQ Trust QQQ, defensive allocation also deserves a place in their portfolio. iShares U.S. Consumer Staples ETF IYK or Utilities Select Sector SPDR XLU balance upside from tech with downside protection from stable sectors.

Low Volatility Focus

iShares MSCI USA Min Vol Factor ETF USMV can offer smoother returns and better downside protection.This aims to reduce downside risk without leaving the market entirely.

Dividend and Quality Exposure

Schwab U.S. Dividend Equity ETF SCHD or Vanguard Dividend Appreciation ETF VIG offer steady income and quality companies with strong balance sheets. This is a smart move if momentum retreats.

One can try ETFs like Vanguard High Dividend Yield ETF VYM. High-dividend stocks and ETFs provide investors with avenues to make up for capital losses, if that happens at all.

Focus on Quality

In an uncertain time, quality-focused ETFs, such as iShares MSCI USA Quality Factor ETF QUAL or Invesco S&P 500 Quality ETF SPHQ, could be good options. These ETFs offer exposure to companies with strong balance sheets, consistent earnings and high return on equity. These firms are more likely to weather ambiguity with resilience.

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This article originally published on Zacks Investment Research (zacks.com).

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