Bet On Quality ETFs & Stocks To Fight Volatility

After surging to peak levels at the end of August, the Wall Street is once again caught in a web of woes, including lingering trade uncertainty, ongoing troubles in emerging markets, chances of auto tariffs on other countries, Iran oil sanctions, another budget deadline, and the mid-term election in November.

Further, September is historically a weak month for the stock market and even worse in the mid-term election years. If we go by history, mid-term election widened losses for the Dow Jones and Nasdaq to 1% and 0.8%, respectively, from 0.7% and 0.5% for September, according to the Almanac data. However, S&P 500 losses narrowed slightly by 10 bps to an average of 0.4%.

While these factors cannot be ignored, strong corporate earnings and a booming economy have been the strong catalysts for the stock market rally this year. The dual tailwinds will continue to keep the positive momentum alive albeit at a slower pace.

The U.S. economy is witnessing the fastest pace of growth in nearly four years with a nearly two-decade low unemployment rate of 3.9% and 18-year high consumer confidence. Historic tax cuts, higher government spending, and deregulation are fueling growth. Additionally, the Fed is on track for gradual rates hike with the third increase of this year expected as soon as this month. A rising rate scenario also signals a strengthening economy, which is spurring growth in the stock market.

Given bullish fundamentals amid bouts of uncertainty, investors should focus on high-quality investing.

Why Quality Investing?

Quality stocks are rich in value characteristics with healthy balance sheets, 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. Further, academic research shows that high-quality companies consistently deliver superior risk-adjusted returns than the broader market over the long term.

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Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any specific ...

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