Quality ETFs & Stocks To Outperform Amid Volatility

The U.S. stock market has been exhibiting heightened volatility ahead of Christmas. Notably, the S&P 500 witnessed its best start to December in eight years followed by the best week since 2011 while posting its worst one-day performance in nearly a month by falling more than 3% on Dec 4.

The sell-off was triggered by the flattening yield curve (a phenomenon in which longer-dated debt yields fall faster than their shorter-dated counterparts) that has sparked fears of recession. Notably, the spread between the 10-year yield over its two-year counterpart shrank to the smallest since the start of the financial crisis in January 2008, signaling a slowdown in the world's largest economy.

Although the trade truce between the United States and China at the Group of 20 meeting in Argentina renewed the appetite for riskier assets at the first day of trading in December, conflicting comments from President Trump and some senior officials led to uncertainty over trade talks. However, the Fed’s dovish view, an accelerating economy and hopes for fresh cuts in oil supply when OPEC meets in Vienna on Dec 6, bode well for the stock market.

Powell recently said that interest rates were "just below" the level that would be neutral for the economy — meaning they will neither speed up nor slow down economic growth. This is in contrast to October remarks — the rate was “a long way” from neutral — which led to worries that the rate increases will crimp growth. Additionally, the subsequent minutes from the central bank's latest meeting suggest that the Fed will likely raise rates this month but may stall rate hikes next year.

Further, the U.S. economy has been on a solid growth track with robust job creation, strong GDP growth, a 50-year low unemployment rate, solid wage gains, and rising consumer and business confidence.
 
Given the bullish fundamentals amid bouts of uncertainty, investors should focus on high-quality investing.

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