Stay Ahead of Market Turmoil With These ETFs

The S&P 500’s performance signals escalating volatility and a clear uptick in investor nervousness. The broad market index has lost about 2.6% since the beginning of the month and around 2.5% over the past week (as of Nov. 17).

The spike in volatility is further underscored by the CBOE Volatility Index, which has surged nearly 35% since Nov. 11. Driven by concerns about valuations, a potential AI bubble, and fading hopes for further rate cuts by the Fed, U.S. stocks fell for a third straight day on Monday.

A pause in rate cuts could put further pressure on U.S. equities. According to the CME FedWatch Tool, markets are now pricing in a 46.6% likelihood of another interest rate cut in December, a sharp pullback from expectations just a month ago.

According to Reuters, market data and analyst commentary suggest retail investors are growing less confident in a U.S. market rebound. As stocks have retreated from their recent highs this month, dip-buying activity has slowed significantly.

Why AI Bubble Concerns Should Not Be Ignored

Broader markets are coming under pressure as fears of stretched AI valuations intensify, a trend reflected in the S&P 500’s recent downturn. The tech-heavy Nasdaq Composite has been hit even harder, dropping about 4.8% since the beginning of the month and 3.2% over the past week (as of Nov. 17).

Rising concerns over the sustainability of the AI boom highlight sector concentration risks and potential systemic vulnerabilities, weighing on investor confidence. Even subtle signs of caution or unexpected news can trigger negative market reactions, sparking investor panic, leading to broad sell-offs.

According to Alphabet CEO Sundar Pichai’s interview with the BBC, as quoted by Reuters, a collapse in the AI boom would leave virtually no company untouched, given that sky-high valuations and aggressive investment flows continue to raise bubble concerns.

ETFs to Consider

Preserving capital and cushioning volatility are key for investors looking to navigate a potentially tumultuous period. Investors should adopt a defensive and conservative investment approach in the near term, as it is better to be cautious than unprepared.

Increasing allocations toward defensive funds may be a prudent strategy, allowing investors to participate in potential upside while still adding protection against elevated volatility. With ETFs offering diversification and tax efficiency, investors can use them to increase exposure to defensive funds.

Below, we highlight a few areas in which investors can increase their exposure.

Value ETFs

Characterized by solid fundamentals, such as earnings, dividends, book value and cash flow, these stocks trade below their intrinsic value, representing undervaluation.

Vanguard Value ETF VTV, iShares Russell 1000 Value ETF IWD and iShares S&P 500 Value ETF IVE could be appealing options.

Consumer Staple ETFs

Increasing exposure to consumer staple funds can bring balance and stability to investors’ portfolios. Investors can allocate more money to consumer staple funds to safeguard themselves against potential market downturns.

Investors can consider Consumer Staples Select Sector SPDR Fund XLP, Vanguard Consumer Staples ETF VDC and iShares U.S. Consumer Staples ETF IYK.

Quality ETFs

Investors can consider funds like iShares MSCI USA Quality Factor ETF QUAL, Invesco S&P 500 Quality ETF SPHQ and JPMorgan U.S. Quality Factor ETF JQUA. Amid market uncertainty, quality investing emerges as a strategic response, providing a buffer against potential headwinds.

ETF Strategies Investors Can Use

Investors may lean more toward stability as risk aversion rises. Adopting passive, long-term strategies, such as buy-and-hold or dollar-cost averaging, could help navigate potential near-term pullbacks while still positioning for sustainable returns over time.

Adopting such strategies can help investors build a resilient portfolio. Both strategies stand out as effective ways to create portfolio momentum and build wealth in the long term, ignoring short-term price fluctuations.

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

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