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AI Fatigue Setting In: ETFs That May Offer Respite
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Key Takeaways
AI-driven sell-offs are spreading beyond tech into broader sectors.
Markets show a "sell first, ask questions later" reaction to AI-related headlines.
Defensive ETFs like VDC, XLU and VIG can help cushion portfolios amid tech selloffs.
Last week’s sell-off in U.S. software and data services stocks dubbed “software-mageddon,” combined with intensifying Wall Street scrutiny of Big Tech’s rising AI spending, underscored growing fatigue around AI trade.
This weakness spilled over into financial stocks on Tuesday, reflecting rising concerns over AI-driven disruption within the sector. More broadly, escalating fears around artificial intelligence are increasingly weighing on vulnerable industries.
Heavy selling gripped Wall Street on Thursday, with trucking and logistics as well as real estate services stocks among the latest to come under pressure amid worries about AI’s potential impact, as per Yahoo Finance. The S&P 500 and the Nasdaq Composite both ended the session in negative territory, declining about 1.6% and 2.0%, respectively.
According to Yahoo Finance, shares of logistics and freight operators C.H. Robinson (CHRW - Free Report) and Universal Logistics (ULH - Free Report) slid sharply on Thursday after a Florida-based firm announced a tool that could scale freight volumes without additional headcount.
As per Jeff Favuzza, analyst at Jefferies, the dominant theme beneath the surface across markets is a “sell first, ask questions later” reaction to any segment tied to an AI-related headline, as quoted on the abovementioned Yahoo Finance article. Importantly, the perceived AI threat is also beginning to show up in corporate disclosures.
A study by The Conference Board, conducted in October and cited by the Yahoo Finance article, found that approximately three-quarters of S&P 500 companies identified AI as a material risk in their filings, a sharp increase from just 12% in 2023.
ETFs to Consider
Preserving capital and cushioning volatility are critical for investors navigating a volatile period. In this environment, diversification and reducing concentration risk through ETFs focused on stable cash flows and resilient sectors remain among the most effective strategies. Such an approach can enhance portfolio durability while still allowing participation in broader economic upside.
These sectors offer a dual advantage, helping shield portfolios during periods of market stress while providing upside potential when market conditions improve. Below, we have highlighted several areas where investors can consider expanding their exposure.
Utility ETFs
As a low-beta sector, utilities are relatively shielded from market volatility, making them a defensive investment and a safe haven during economic turmoil. Investors often turn to utilities during downturns due to the steady demand for these companies' services.
Investors should gain from funds like Utilities Select Sector SPDR Fund (XLU - Free Report) , Vanguard Utilities ETF (VPU - Free Report) and iShares U.S. Utilities ETF (IDU - Free Report) . All the mentioned funds have Zacks ETF Rank #2 (Buy), with XLU, VPU and IDU having dividend yield of 2.6%, 2.61% and 2.11%, respectively.
Consumer Staples 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) . The aforementioned funds have performed well over both the past three months and the past month. XLP leads the group, gaining 10.30% and 7.45% in the past three months and one month, respectively.
Dividend ETFs
Dividend-paying securities serve as primary sources of reliable income for investors, particularly during periods of equity market volatility. These stocks offer dual advantages of safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. Companies offering dividends often act as a hedge against economic uncertainty.
Investors can consider Vanguard Dividend Appreciation ETF (VIG - Free Report) , Schwab US Dividend Equity ETF (SCHD - Free Report) and Vanguard High Dividend Yield Index ETF (VYM - Free Report) , which have dividend yields of 1.55%, 3.31% and 2.24%, respectively. VIG and VYM have a Zacks ETF Rank #1 (Strong Buy) each, while SCHD has a Zacks ETF Rank #2.
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AI Fatigue Setting In: ETFs That May Offer Respite
Key Takeaways
Last week’s sell-off in U.S. software and data services stocks dubbed “software-mageddon,” combined with intensifying Wall Street scrutiny of Big Tech’s rising AI spending, underscored growing fatigue around AI trade.
This weakness spilled over into financial stocks on Tuesday, reflecting rising concerns over AI-driven disruption within the sector. More broadly, escalating fears around artificial intelligence are increasingly weighing on vulnerable industries.
Heavy selling gripped Wall Street on Thursday, with trucking and logistics as well as real estate services stocks among the latest to come under pressure amid worries about AI’s potential impact, as per Yahoo Finance. The S&P 500 and the Nasdaq Composite both ended the session in negative territory, declining about 1.6% and 2.0%, respectively.
According to Yahoo Finance, shares of logistics and freight operators C.H. Robinson (CHRW - Free Report) and Universal Logistics (ULH - Free Report) slid sharply on Thursday after a Florida-based firm announced a tool that could scale freight volumes without additional headcount.
As per Jeff Favuzza, analyst at Jefferies, the dominant theme beneath the surface across markets is a “sell first, ask questions later” reaction to any segment tied to an AI-related headline, as quoted on the abovementioned Yahoo Finance article. Importantly, the perceived AI threat is also beginning to show up in corporate disclosures.
A study by The Conference Board, conducted in October and cited by the Yahoo Finance article, found that approximately three-quarters of S&P 500 companies identified AI as a material risk in their filings, a sharp increase from just 12% in 2023.
ETFs to Consider
Preserving capital and cushioning volatility are critical for investors navigating a volatile period. In this environment, diversification and reducing concentration risk through ETFs focused on stable cash flows and resilient sectors remain among the most effective strategies. Such an approach can enhance portfolio durability while still allowing participation in broader economic upside.
These sectors offer a dual advantage, helping shield portfolios during periods of market stress while providing upside potential when market conditions improve. Below, we have highlighted several areas where investors can consider expanding their exposure.
Utility ETFs
As a low-beta sector, utilities are relatively shielded from market volatility, making them a defensive investment and a safe haven during economic turmoil. Investors often turn to utilities during downturns due to the steady demand for these companies' services.
Investors should gain from funds like Utilities Select Sector SPDR Fund (XLU - Free Report) , Vanguard Utilities ETF (VPU - Free Report) and iShares U.S. Utilities ETF (IDU - Free Report) . All the mentioned funds have Zacks ETF Rank #2 (Buy), with XLU, VPU and IDU having dividend yield of 2.6%, 2.61% and 2.11%, respectively.
Consumer Staples 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) . The aforementioned funds have performed well over both the past three months and the past month. XLP leads the group, gaining 10.30% and 7.45% in the past three months and one month, respectively.
Dividend ETFs
Dividend-paying securities serve as primary sources of reliable income for investors, particularly during periods of equity market volatility. These stocks offer dual advantages of safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. Companies offering dividends often act as a hedge against economic uncertainty.
Investors can consider Vanguard Dividend Appreciation ETF (VIG - Free Report) , Schwab US Dividend Equity ETF (SCHD - Free Report) and Vanguard High Dividend Yield Index ETF (VYM - Free Report) , which have dividend yields of 1.55%, 3.31% and 2.24%, respectively. VIG and VYM have a Zacks ETF Rank #1 (Strong Buy) each, while SCHD has a Zacks ETF Rank #2.