Federal Reserve Chair Jerome Powell, as expected, kept interest rates steady in the range of 4.25% to 4.5% for the third time in a row, defying President Trump's calls for the central bank to loosen monetary policy. Powell warned of a higher risk of unemployment and inflation.
Powell reiterated that the central bank need not be in a "hurry" to cut interest rates and could "wait and see" the impacts of tariffs on the economy. In a statement, the Fed officials noted that while the uncertainty about the economic outlook has increased, the economy has continued to expand at a "solid pace" despite swings in net exports that affected data during the first months of 2025. The central bank said that the GDP report, which shows that the U.S. economy contracted for the first time in three years, is largely due to a rush by importers ahead of Trump's tariffs and that otherwise, the economy has shown some resilience.
Meanwhile, the latest job report reveals that the U.S. labor market remained resilient amid the tariff chaos. The economy added better-than-expected 177,000 jobs while the unemployment rate held steady at 4.2%, providing further assurance about the economy's health.
Given the Fed’s comments, we have highlighted five zones and their popular ETFs where investors could park their money.
Low Volatility - iShares Edge MSCI Min Vol USA ETF (USMV)
Low-volatility ETFs have the potential to outpace the broader market in an uncertain market environment, providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to the defensive sectors that usually have a higher distribution yield than the broader markets (read: Don't Sell in May and Go Away: Follow These ETF Strategies).
While there are several options, USMV, with AUM of $23.9 billion and an average daily volume of 4 million shares, is the most popular ETF. The fund charges 15 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
Quality - iShares MSCI USA Quality Factor ETF (QUAL)
Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility, elevated margins and a track of stable or rising sales and earnings growth. These products thus reduce volatility when compared to plain vanilla funds and hold up rather well during market swings.
With AUM of $48.9 billion, iShares MSCI USA Quality Factor ETF provides exposure to large and mid-cap stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index. The ETF charges 15 bps in annual fees and trades in an average daily volume of 2 million shares. It has a Zacks ETF Rank #3 (Hold) (read: Here's How to Invest in ETFs With Warren Buffett's Strategies).
Value – Vanguard Value ETF (VTV)
Value stocks have proven to be outperformers over the long term and are less susceptible to trending markets. These stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value and are undervalued. These have the potential to deliver higher returns and exhibit lower volatility compared with their growth and blend counterparts.
Vanguard Value ETF targets the value segment of the broad U.S. stock market and follows the CRSP US Large Cap Value Index. It has AUM of $131.2 billion and charges 4 bps in annual fees. The ETF trades in volume of 4 million shares per day on average and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
Dividend - Vanguard Dividend Appreciation ETF (VIG)
Dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. This is especially true as these stocks offer the best of both worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. The companies that offer dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
While the dividend space has been crowded, ETFs with stocks having a strong history of dividend growth, like VIG, seem to be good picks. The ETF has AUM of $87.3 billion and trades in a volume of 1.6 million shares a day on average. It charges 5 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports Vanguard Value ETF (VTV): ETF Research Reports iShares MSCI USA Quality Factor ETF (QUAL): ETF Research Reports iShares MSCI USA Min Vol Factor ETF (USMV): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
