The S&P 500 may be hovering around all-time highs, but uncertainties still prevail in the market. May be this why, quality stocks are dominating the market, up 25% in the past year, per an article published on CNBC. Although the U.S. economy seems to be on decent footing along with falling inflation, global economy is yet to recover.

This puts focus on quality ETF investing. In the midst of these conflicting market signals, quality investing presents itself as a strategic approach to weathering market turbulence. Quality investing focuses on identifying companies with strong fundamentals, stable earnings, and durable competitive advantages. By investing in high-quality companies, investors can potentially mitigate the risks associated with economic downturns and market fluctuations.

Below we highlight a few reasons that can hinder economic growth, cause market fluctuations and boost quality investing.

Geopolitical Concerns

“The geopolitical factor with China is certainly on everyone’s mind,” said Franklin Templeton Investments’ David Mann, the firm’s global head of product and capital markets. “China was down last year. It is down again this year. Investors are probably looking a lot at the political side,” as quoted on CNBC.

Tensions in the Red Sea and the Baltic Sea pose risks to oil supplies. Houthi militants in Yemen continue to target shipping in the Red Sea, affecting global supply chains. Additionally, a suspected Ukrainian drone attack on a Russian fuel terminal highlights the ongoing geopolitical threats to fuel supplies. An increase in oil prices can contribute to global inflation, potentially hindering economic growth.

Interest Rate Environment

The interest rate environment can significantly impact different types of stocks. Moreover, investors recently scaled back their expectations for Imminent Fed interest rate cuts. Although the latest inflation data came in at hopeful, the Fed may seek continuation of low inflation before taking decision of rate cuts. In fact, Fed Governor Chris Waller expressed his belief that the Fed could lower interest rates in the coming year as long as inflation remains in check.

Will Rampant Job Cuts Lead to Economic Slowdown?

In times of economic uncertainty and increased market volatility, investors often gravitate towards quality stocks. Tech layoffs increased in January. About 23,670 workers have been laid off in January, the most in any month since March, according to the website Layoffs.fyi, as quoted on CNBC. Concerns have emerged in various sectors of the economy about the diminishing necessity for human labor, due to growing deployment of artificial intelligence (AI).

The layoffs aren’t limited to the tech industry. Citigroup said earlier this month that it was cutting 10% of its workforce. And on Thursday Levi Strauss said it will lay off at least 10% of its global corporate workforce as part of a restructuring. Paramount became the latest media brand to announce cuts.

In its latest earnings release,Visa (V) delivered a cautious revenue growth forecast, raising concerns about a slowdown in U.S. payments volume growth, which could signal an impending economic downturn.

ETFs in Focus

Against this backdrop, investors can bet on quality ETFs like WisdomTree U.S. Quality Growth Fund (QGRW Quick QuoteQGRW - Free Report) , American Century U.S. Quality Growth ETF (QGRO Quick QuoteQGRO - Free Report) , Pacer US Large Cap Cash Cows Growth Leaders ETF (COWG Quick QuoteCOWG - Free Report) , iShares MSCI USA Quality Factor ETF (QUAL Quick QuoteQUAL - Free Report) and JPMorgan U.S. Quality Factor ETF (JQUA Quick QuoteJQUA - Free Report) .

In uncertain economic times, these companies are perceived as safer investments because they are more likely to withstand market downturns and continue to perform well.