Despite the heightened volatility last month, the S&P 500 still ended October in the green, climbing 1.9% in the month. The momentum appears to be continuing in November as well, with the broad market index adding around 0.18% on Monday.

According to Reuters, as quoted on Yahoo Finance, October marked the S&P 500’s sixth consecutive monthly increase, the index’s longest stretch of gains in four years.

Progress in the U.S.-China trade agreement, the Fed’s interest rate cut in October and surging AI demand are helping paint an optimistic picture for the U.S. economy, reinforcing growing confidence in the economy’s momentum and global stability.

However, volatility risks still linger beneath the surface, which raises the odds of a downside, making defensive bets a smart play.

What Can Make the Markets Unsteady?

With the government shutdown dragging on for over a month, fading expectations of a December rate cut and growing concerns over a potential AI bubble, investors may turn increasingly nervous about heightened volatility ahead. According to Reuters, questions persist about whether the U.S.–China truce can actually be sustained over time.

Per the abovementioned Yahoo Finance article, Fed Chair Jerome Powell dialed back expectations for a December rate cut last week, cooling some of the recent market optimism. According to the CME FedWatch tool, markets are anticipating a 72.1% likelihood of interest rates being cut in December.

At the same time, rising concerns over the sustainability of the AI boom highlight sector concentration risks and potential systemic vulnerabilities, weighing on investor confidence. Even subtle signs of caution or unexpected news can trigger negative market reactions, sparking investor panic, leading to broad sell-offs.

Are We Due for a Market Pullback?

U.S. indexes have surged to new highs over the recent period, but Goldman Sachs and Morgan Stanley are warning investors to brace for a possible pullback over the next two years.

According to Goldman Sachs CEO David Solomon, as quoted on CNBC, equity markets may see a 10–20% pullback within the next 12 to 24 months. However, Solomon highlighted that these reversals are typical in long-term bull markets, reiterating that staying invested and optimally allocated is more effective than trying to time the market.

Morgan Stanley CEO Ted Pick echoed a similar sentiment, noting that investors should view periodic pullbacks as healthy market developments rather than signs of a crisis, as quoted in the abovementioned CNBC article. Their comments come on the heels of recent IMF warnings of a potential sharp correction. Fed Chair Jerome Powell and Bank of England Governor Andrew Bailey have also flagged concerns over stretched equity valuations.

ETFs to Consider

Preserving capital and cushioning volatility are key for investors looking to navigate a potentially tumultuous period. Investors should adopt a defensive and conservative investment theme in the near term, as it's better to be cautious than unprepared.

Investors do not necessarily need to reduce exposure to growth-oriented or higher-risk funds, especially with the current wave of optimism in the market. However, increasing allocations toward defensive funds may be a prudent strategy, allowing investors to participate in potential upside while still adding protection against elevated volatility.

With ETFs offering diversification and tax efficiency, investors can use them to increase exposure to defensive funds. Below, we highlight a few areas in which investors can increase their exposure.

Value ETFs

Characterized by solid fundamentals, such as earnings, dividends, book value and cash flow, these stocks trade below their intrinsic value, representing undervaluation. The S&P 500 Value Index has gained 7.52% year to date.

Vanguard Value ETF (VTV Quick QuoteVTV - Free Report) , iShares Russell 1000 Value ETF (IWD Quick QuoteIWD - Free Report) and iShares S&P 500 Value ETF (IVE Quick QuoteIVE - Free Report) , having a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), could be appealing options.

Consumer Staple ETFs

Increasing exposure to consumer staple funds can bring balance and stability to investors’ portfolios. Investors can put more money in consumer staples funds to safeguard themselves from potential market downturns. The S&P 500 Consumer Staples Index has gained 3.20% year to date.

Investors can consider Consumer Staples Select Sector SPDR Fund (XLP Quick QuoteXLP - Free Report) , Vanguard Consumer Staples ETF (VDC Quick QuoteVDC - Free Report) and iShares U.S. Consumer Staples ETF (IYK Quick QuoteIYK - Free Report) .

Quality ETFs

Investors can look at funds like iShares MSCI USA Quality Factor ETF (QUAL Quick QuoteQUAL - Free Report) , Invesco S&P 500 Quality ETF (SPHQ Quick QuoteSPHQ - Free Report) and JPMorgan U.S. Quality Factor ETF (JQUA Quick QuoteJQUA - Free Report) . Amid market uncertainty, quality investing emerges as a strategic response, providing a buffer against potential headwinds.

ETF Strategies Investors Can Use

Investors may lean more toward stability as risk aversion rises. Adopting passive, long-term strategies such as buy-and-hold or dollar-cost averaging could help navigate potential near-term pullbacks while still positioning for sustainable returns over time.

Adopting such strategies can help investors build a resilient portfolio. Both the strategies stand out as an effective way to create portfolio momentum and build wealth in the long term, ignoring short-term price fluctuations.

They are also beneficial for new investors and investors who prefer a more hands-off investment approach.