We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
With Markets on Edge, Defensive ETFs Deserve a Second Look
Read MoreHide Full Article
Key Takeaways
Markets may climb, but volatility and geopolitical risk argue for prudence.
Defensive ETFs gain appeal as markets face volatility and geopolitical risks.
Value, quality and consumer staples ETFs offer stability amid uncertainty.
Volatility has carried over from 2025 into this year, yet markets continue to climb, seemingly brushing aside growing uncertainty and risk. The S&P 500 is up about 1.7% so far in January, building on the broad market index’s roughly 17% gain last year.
However, that resilience may not last indefinitely. As uncertainty persists, market sentiment could eventually reach a tipping point, prompting a shift toward risk aversion, one that may put renewed pressure on equity markets. Notably, the CBOE Volatility Index has jumped about 15% since last Friday, signaling a move toward risk-off sentiment.
It’s only mid-January, and markets are already contending with rising geopolitical tensions, uncertainty over Fed independence and questions around proposed credit card caps, making increased exposure to defensive funds a prudent investment approach. This reinforces the idea that taking precautions upfront is better than facing avoidable risks later.
Global Flashpoints Are Forcing Investors to Rethink Risk
Recent geopolitical developments paint a picture of prolonged instability, with elevated tensions likely to remain a long-term headwind.
U.S. military actions in Syria and Venezuela, Trump’s renewed focus on acquiring Greenland, even through military means, alongside persistent tensions across the Middle East and Asia’s key flashpoints, highlight an increasingly fragile and complex geopolitical landscape and underscore rising global instability.
The risk of prolonged geopolitical volatility is underscored by rising global defense spending. President Trump’s proposal for a $1.5 trillion U.S. military budget in 2027, alongside projected global defense expenditures topping $3.6 trillion by 2030, which, according to Global X, marks a roughly 33% increase from 2024, reflects how economies are preparing for sustained geopolitical tensions.
The Trump–Powell Tension Refuses to Fade
Trump’s repeated public attacks on Fed Chair Jerome Powell have likely amplified investor concerns. According to JPMorgan Chase (JPM - Free Report) CEO Jamie Dimon, as quoted on CNBC, undermining central bank independence could backfire, raising inflation expectations and putting upward pressure on interest rates over time.
Shortly after the Trump administration began a criminal investigation targeting Jerome Powell, BNY (BK - Free Report) CEO, Robin Vince, joined Dimon, expressing support for maintaining the independence of the U.S. Federal Reserve, cautioning that undermining central bank independence could have serious negative consequences, as quoted on Reuters.
Credit Card Cap May Backfire on Consumers and the Economy
According to another Reuters article, Jamie Dimon and other top JPMorgan executives have cautioned that Trump’s proposed 10% credit card interest rate cap could seriously harm consumers and the economy, with the industry warning that millions of households could lose access to credit.
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 approach in the near term, as it is better to be cautious than unprepared.
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 have highlighted a few areas in which investors can increase their exposure.
Value ETFs
Value ETFs focus on stocks characterized by strong fundamentals and robust financial health, which trade below their intrinsic value, representing undervaluation. They offer the potential for higher, more stable returns and lower volatility than growth and blend stocks.
Additionally, value ETFs can serve as a source of income through dividends.
Vanguard Value ETF (VTV - Free Report) , Avantis U.S. Large Cap Value ETF AVLV and Vanguard Small Cap Value ETF (VBR - Free Report) could be appealing options.
Consumer Staple ETFs
Increasing exposure to consumer staple funds can bring balance and stability to investors’ portfolios. Investors can allocate more money to consumer staple funds to safeguard themselves against potential market downturns.
Investors can consider Consumer Staples Select Sector SPDR Fund (XLP - Free Report) , Vanguard Consumer StaplesETF (VDC - Free Report) and iShares U.S. Consumer Staples ETF (IYK - Free Report) .
Quality ETFs
Investors can consider funds like iShares MSCI USA Quality Factor ETF (QUAL - Free Report) , Invesco S&P 500Quality ETF (SPHQ - Free Report) and JPMorgan U.S. Quality Factor ETF (JQUA - Free Report) . Amid market uncertainty, quality investing emerges as a strategic response, providing a buffer against potential headwinds.
Volatility ETFs
Increasing exposure to volatility ETFs in the short term can be a winning move for investors. These funds have delivered short-term gains during periods of market chaos and may climb further if volatility continues.
Investors can also increase exposure to volatility ETFs like iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report) and ProShares VIX Short-Term Futures ETF (VIXY - Free Report) .
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 strategies stand out as effective ways to create portfolio momentum and build wealth in the long term, ignoring short-term price fluctuations.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Shutterstock
With Markets on Edge, Defensive ETFs Deserve a Second Look
Key Takeaways
Volatility has carried over from 2025 into this year, yet markets continue to climb, seemingly brushing aside growing uncertainty and risk. The S&P 500 is up about 1.7% so far in January, building on the broad market index’s roughly 17% gain last year.
However, that resilience may not last indefinitely. As uncertainty persists, market sentiment could eventually reach a tipping point, prompting a shift toward risk aversion, one that may put renewed pressure on equity markets. Notably, the CBOE Volatility Index has jumped about 15% since last Friday, signaling a move toward risk-off sentiment.
It’s only mid-January, and markets are already contending with rising geopolitical tensions, uncertainty over Fed independence and questions around proposed credit card caps, making increased exposure to defensive funds a prudent investment approach. This reinforces the idea that taking precautions upfront is better than facing avoidable risks later.
Global Flashpoints Are Forcing Investors to Rethink Risk
Recent geopolitical developments paint a picture of prolonged instability, with elevated tensions likely to remain a long-term headwind.
U.S. military actions in Syria and Venezuela, Trump’s renewed focus on acquiring Greenland, even through military means, alongside persistent tensions across the Middle East and Asia’s key flashpoints, highlight an increasingly fragile and complex geopolitical landscape and underscore rising global instability.
The risk of prolonged geopolitical volatility is underscored by rising global defense spending. President Trump’s proposal for a $1.5 trillion U.S. military budget in 2027, alongside projected global defense expenditures topping $3.6 trillion by 2030, which, according to Global X, marks a roughly 33% increase from 2024, reflects how economies are preparing for sustained geopolitical tensions.
The Trump–Powell Tension Refuses to Fade
Trump’s repeated public attacks on Fed Chair Jerome Powell have likely amplified investor concerns. According to JPMorgan Chase (JPM - Free Report) CEO Jamie Dimon, as quoted on CNBC, undermining central bank independence could backfire, raising inflation expectations and putting upward pressure on interest rates over time.
Shortly after the Trump administration began a criminal investigation targeting Jerome Powell, BNY (BK - Free Report) CEO, Robin Vince, joined Dimon, expressing support for maintaining the independence of the U.S. Federal Reserve, cautioning that undermining central bank independence could have serious negative consequences, as quoted on Reuters.
Credit Card Cap May Backfire on Consumers and the Economy
According to another Reuters article, Jamie Dimon and other top JPMorgan executives have cautioned that Trump’s proposed 10% credit card interest rate cap could seriously harm consumers and the economy, with the industry warning that millions of households could lose access to credit.
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 approach in the near term, as it is better to be cautious than unprepared.
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 have highlighted a few areas in which investors can increase their exposure.
Value ETFs
Value ETFs focus on stocks characterized by strong fundamentals and robust financial health, which trade below their intrinsic value, representing undervaluation. They offer the potential for higher, more stable returns and lower volatility than growth and blend stocks.
Additionally, value ETFs can serve as a source of income through dividends.
Vanguard Value ETF (VTV - Free Report) , Avantis U.S. Large Cap Value ETF AVLV and Vanguard Small Cap Value ETF (VBR - Free Report) could be appealing options.
Consumer Staple ETFs
Increasing exposure to consumer staple funds can bring balance and stability to investors’ portfolios. Investors can allocate more money to consumer staple funds to safeguard themselves against potential market downturns.
Investors can consider Consumer Staples Select Sector SPDR Fund (XLP - Free Report) , Vanguard Consumer Staples ETF (VDC - Free Report) and iShares U.S. Consumer Staples ETF (IYK - Free Report) .
Quality ETFs
Investors can consider funds like iShares MSCI USA Quality Factor ETF (QUAL - Free Report) , Invesco S&P 500 Quality ETF (SPHQ - Free Report) and JPMorgan U.S. Quality Factor ETF (JQUA - Free Report) . Amid market uncertainty, quality investing emerges as a strategic response, providing a buffer against potential headwinds.
Volatility ETFs
Increasing exposure to volatility ETFs in the short term can be a winning move for investors. These funds have delivered short-term gains during periods of market chaos and may climb further if volatility continues.
Investors can also increase exposure to volatility ETFs like iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report) and ProShares VIX Short-Term Futures ETF (VIXY - Free Report) .
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 strategies stand out as effective ways to create portfolio momentum and build wealth in the long term, ignoring short-term price fluctuations.