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Strong earnings and quality leadership boost the outlook for quality-focused ETFs.
Rising yields and oil uncertainty make quality ETFs a smart defensive choice.
JQUA, QGRW, SPHQ, FQAL and QDEF offer solid exposure to high-quality stocks.
Momentum investing could be poised for a comeback after suffering one of its steepest pullbacks on record, according to Morgan Stanley strategist Michael Wilson, per Bloomberg, as quoted on Yahoo Finance. However, the next phase of gains may be driven by companies with stable earnings rather than the semiconductor stocks that fueled the previous rally.
Chip Selloff Sparks Rotation
The recent market rotation has been driven by heavy selling in global semiconductor stocks. Investors have grown increasingly concerned that some of the world's largest technology companies are spending aggressively on AI-related capital expenditures, raising questions about future returns.
Even so, the broader corporate earnings picture remains robust. According to Bloomberg Intelligence, second-quarter earnings per share are growing at a 29% year-over-year pace, while 86% of S&P 500 companies have exceeded analysts' expectations—the highest beat rate in five years, as quoted on the same Yahoo Finance source.
Leadership Shifts Toward Quality Stocks
Wilson believes the recent correction marks a transition from high-growth momentum names to quality companies with consistent earnings, healthy margins and operational efficiency. He also highlighted insurance and healthcare equipment and services stocks as areas gaining investor interest.
Treasury Yields Surge on Fed Uncertainty
Treasury yields climbed sharply following the Federal Reserve's decision to keep interest rates unchanged at its month-end meeting without offering clear guidance.
The benchmark 10-year Treasury yield closed July at 4.75%, its highest level since January 2025 (per CNBC), while the 30-year Treasury yield climbed to 5.27%, the highest since 2007. Investors grew increasingly concerned that elevated borrowing costs could pressure equity valuations (read: Fed Holds Rates Steady, May Hike Ahead: ETFs in Focus).
Rising Oil Prices Add to Inflation Worries
Energy markets remained under pressure after renewed geopolitical tensions disrupted traffic through the Strait of Hormuz. Higher oil and gasoline prices have reignited concerns about inflation and consumer spending, even as the latest University of Michigan survey showed improving consumer sentiment. United States Brent Oil Fund LP (BNO) has jumped about 27.8% over the past month (as of July 31, 2026).
Although oil prices slumped to start August as investors monitored renewed signs of U.S.-Iran negotiations, a final and solid truce is yet to materialize. Hence, uncertainty prevails on the energy price front.
How to Manage Risk in an Evolving Market
Maintaining a well-balanced portfolio to navigate market fluctuations is an effective tool. One can try out quality ETFs, especially those that are on sale.
Why It Is Time for High-Quality ETFs & Stocks
High-quality stocks are seen as relatively defensive and can provide safety to one’s portfolio during market downturns, like what we have been witnessing currently. Amid 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.
5 Quality ETF Picks
Below, we highlight a few quality exchange-traded funds (ETFs) that can be gainful for investors. These ETFs have returned in line with the State Street SPDR S&P 500 ETF Trust (SPY - Free Report) (up 10.9%) year to date (as of Aug. 3, 2026).
JPMorgan U.S. Quality Factor ETF (JQUA - Free Report) – Up 10.9% YTD (as of Aug. 3, 2026)
AUM: $8.22 billion
Expense Ratio: 0.12%
WisdomTree U.S. Quality Growth Fund (QGRW - Free Report) – Up 13.5% YTD
AUM: $2.70 billion
Expense Ratio: 0.28%
FlexShares Quality Dividend Defensive Index Fund (QDEF - Free Report) – Up 9.9% YTD
View the Zacks #1 Rank List
Image: Bigstock
Here's Why You Should Buy Quality ETFs Now
Key Takeaways
Momentum investing could be poised for a comeback after suffering one of its steepest pullbacks on record, according to Morgan Stanley strategist Michael Wilson, per Bloomberg, as quoted on Yahoo Finance. However, the next phase of gains may be driven by companies with stable earnings rather than the semiconductor stocks that fueled the previous rally.
Chip Selloff Sparks Rotation
The recent market rotation has been driven by heavy selling in global semiconductor stocks. Investors have grown increasingly concerned that some of the world's largest technology companies are spending aggressively on AI-related capital expenditures, raising questions about future returns.
Even so, the broader corporate earnings picture remains robust. According to Bloomberg Intelligence, second-quarter earnings per share are growing at a 29% year-over-year pace, while 86% of S&P 500 companies have exceeded analysts' expectations—the highest beat rate in five years, as quoted on the same Yahoo Finance source.
Leadership Shifts Toward Quality Stocks
Wilson believes the recent correction marks a transition from high-growth momentum names to quality companies with consistent earnings, healthy margins and operational efficiency. He also highlighted insurance and healthcare equipment and services stocks as areas gaining investor interest.
Treasury Yields Surge on Fed Uncertainty
Treasury yields climbed sharply following the Federal Reserve's decision to keep interest rates unchanged at its month-end meeting without offering clear guidance.
The benchmark 10-year Treasury yield closed July at 4.75%, its highest level since January 2025 (per CNBC), while the 30-year Treasury yield climbed to 5.27%, the highest since 2007. Investors grew increasingly concerned that elevated borrowing costs could pressure equity valuations (read: Fed Holds Rates Steady, May Hike Ahead: ETFs in Focus).
Rising Oil Prices Add to Inflation Worries
Energy markets remained under pressure after renewed geopolitical tensions disrupted traffic through the Strait of Hormuz. Higher oil and gasoline prices have reignited concerns about inflation and consumer spending, even as the latest University of Michigan survey showed improving consumer sentiment. United States Brent Oil Fund LP (BNO) has jumped about 27.8% over the past month (as of July 31, 2026).
Although oil prices slumped to start August as investors monitored renewed signs of U.S.-Iran negotiations, a final and solid truce is yet to materialize. Hence, uncertainty prevails on the energy price front.
How to Manage Risk in an Evolving Market
Maintaining a well-balanced portfolio to navigate market fluctuations is an effective tool. One can try out quality ETFs, especially those that are on sale.
Why It Is Time for High-Quality ETFs & Stocks
High-quality stocks are seen as relatively defensive and can provide safety to one’s portfolio during market downturns, like what we have been witnessing currently. Amid 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.
5 Quality ETF Picks
Below, we highlight a few quality exchange-traded funds (ETFs) that can be gainful for investors. These ETFs have returned in line with the State Street SPDR S&P 500 ETF Trust (SPY - Free Report) (up 10.9%) year to date (as of Aug. 3, 2026).
JPMorgan U.S. Quality Factor ETF (JQUA - Free Report) – Up 10.9% YTD (as of Aug. 3, 2026)
AUM: $8.22 billion
Expense Ratio: 0.12%
WisdomTree U.S. Quality Growth Fund (QGRW - Free Report) – Up 13.5% YTD
AUM: $2.70 billion
Expense Ratio: 0.28%
FlexShares Quality Dividend Defensive Index Fund (QDEF - Free Report) – Up 9.9% YTD
AUM: $546.8 million
Expense Ratio: 0.39%
Yield: 1.58%
Invesco S&P 500 Quality ETF (SPHQ - Free Report) – Up 12.9% YTD
AUM: $19.53 billion
Expense Ratio: 0.15%
Fidelity Quality Factor ETF (FQAL - Free Report) – Up 9.6% YTD
AUM: $1.41 billion
Expense Ratio: 0.15%