The world’s largest economy is grappling with persistently high inflation levels that are near 40-year high level. The Federal Reserve’s aggressive stance to temper the surging inflation levels is keeping investors on edge. They are worried that the central bank might push the U.S. economy into recession in its attempt to control the inflation levels. Adding to the concerns are the rising supply-chain disturbances arising from the Russia-Ukraine war and China’s zero COVID-19 policy.

As the Russia-Ukraine tension continues, rising commodity prices and fears of further disruptions in global supply-chain distributions might stoke higher inflation. Also, market participants are anxious about the U.S. economy slipping into stagflation due to high interest rates and steep inflation.

Considering the hawkish Fed and high inflation levels, Wall Street is expected to keep bearing the brunt. Per a CNBC article, Deutsche Bank estimated that the S&P 500 could decline to 3,000 if the U.S. economy enters into recession.

The Dow Jones Industrial Average has been already down 12.3% so far in 2022, troubled by a hawkish Fed and surging inflation levels at the start of the year. The other two broad market indices, namely the S&P 500 and the Nasdaq composite are also down 16.6% and 26.3%, respectively.

Taking the tough market conditions into account, let’s find out some investment options for the market participants who wish to ride safe.

Defensive ETFs in Focus

Given the current market volatility,we highlight the following ETFs:

SPDR S&P Dividend ETF (SDY Quick QuoteSDY - Free Report)

Amid a complicated market environment, investors prefer investments that can be a reliable source for consistent and dependable income. In such a scenario, dividend aristocrats can come to the rescue. These are basically blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. Moreover, dividend aristocrat funds give investors dividend growth opportunities compared to other products in the space but might not necessarily have the highest yields. As a result, these products deliver a nice combination of annual dividend growth and capital-appreciation opportunity, and are mostly good for risk-averse long-term investors.

The SPDR S&P Dividend ETF seeks to provide investment results that before fees and expenses correspond generally to the total return performance of the S&P High Yield Dividend Aristocrats Index. The index screens companies that consistently increased their dividend for at least 20 consecutive years. SDY has an AUM of $20.68 billion. SDY charges 35 basis points (bps) of fees per year (read: 10 High-Dividend ETFs Available at Cheaper Valuation).

Vanguard Health Care ETF (VHT Quick QuoteVHT - Free Report)

The healthcare sector stands as a good defensive investment option as several investors believe that consumers will have to purchase healthcare products even during tough and uncertain times. Currently, the Russia-Ukraine war crisis and the tightening monetary policy caused a lot of uncertainty in the markets. Undoubtedly, the pandemic also triggered a race to introduce vaccines, tests and treatment options, opening up investment opportunities in the healthcare sector.

Vanguard Health Care ETF seeks to track the performance of the MSCI US Investable Market Health Care 25/50 Index. VHT has an AUM of $15.31 billion and charges 10 bps of fees (read: Bet on These 2 ETF Areas Amid Current Market Rout).

Fidelity MSCI Consumer Staples Index ETF (FSTA Quick QuoteFSTA - Free Report)

The consumer staples sector is known for its non-cyclical nature and acts as a safe haven during unstable market conditions. Moreover, like utility, consumer staples is considered a stable sector for the long term as its players are likely to offer decent returns. Investors can consider parking their money in the non-cyclical consumer staples sector during an economic recession. This high-quality sector, which is largely defensive, is found to have a low correlation factor with economic cycles.

Fidelity MSCI Consumer Staples Index ETF seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the MSCI USA IMI Consumer Staples Index. FSTA has an AUM of $1.05 billion and charges 8 bps of fees (read:Walmart Slumps on Q1 Earnings Miss: ETFs in Focus).

Invesco S&P 500 Quality ETF (SPHQ Quick QuoteSPHQ - Free Report)

Quality stocks are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility and high margins. These stocks also have a track record of stable or increasing sales and earnings growth. Compared to plain vanilla funds, these products help lower volatility and perform better during market uncertainty. Further, academic research proved that high-quality companies constantly provide better risk-adjusted returns than the broader market over the long term.

The Invesco S&P 500 Quality ETF tracks the S&P 500 Quality Index, a benchmark of the S&P 500 stocks with the highest-quality score based on three fundamental measures, namely, the return on equity, accruals ratio and the financial leverage ratio. With an AUM of $3.49 billion, SPHQ charges 0.15% of fees.

iShares MSCI USA Min Vol Factor ETF (USMV Quick QuoteUSMV - Free Report)

Demand for funds with “low volatility” or “minimum volatility” generally increases during tumultuous times. These seemingly safe products usually do not surge in bull market conditions but offer more protection than the unpredictable ones. These funds are less cyclical, providing more stable cash flow than the overall market.

iShares MSCI USA Min Vol Factor ETF offers exposure to 173 U.S. stocks with lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility (USD) Index. With an AUM of $25.96 billion, USMV charges 0.15% as the expense ratio.