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Tough Time Ahead for U.S. Stocks? ETF Areas That Could Stay Strong
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Key Takeaways
Rising Treasury yields and AI borrowing risks are fueling caution on U.S. stocks.
Cash-flow-focused ETFs and short-term bond funds could offer defensive exposure.
AI remains a favored theme, despite growing concerns over broader market weakness.
Several market watchers and specialists have grown cautious about the prospects for further gains in U.S. equities due to rising Treasury yields. BlackRock (BLK - Free Report) , the world's largest asset manager, has turned defensive on U.S. equities as rising Treasury yields and uncertainty surrounding the artificial intelligence (AI) boom threaten to fuel market volatility, as quoted on Yahoo Finance.
Billionaire investor Ray Dalio believes the stock market could face greater pressure as bond yields climb and companies struggle to translate earnings growth into stronger cash flows, as quoted on CNBC. Although corporate profits are still supporting equities, the Bridgewater Associates founder warned that this cushion may not last much longer.
The International Monetary Fund (IMF) has also warned that government bond yields could surge sharply and unpredictably as rising inflation, mounting public debt and growing AI-related borrowing strain financial markets, as quoted on CNBC.
BlackRock Downgrades U.S. Equities to Neutral
In a Tuesday research update, BlackRock strategists Jean Boivin, Rick Rieder and Wei Li raised their outlook for U.S. Treasuries while lowering their assessment of U.S. stocks to Neutral, according to the above-mentioned Yahoo Finance source.
The move signals a more cautious approach to equities after an extended period of favoring stocks over bonds. Rising yields and expectations of a hawkish Fed have led BlackRock to reduce its longstanding underweight position in Treasuries.
Market Weakness Extends Beyond a Handful of Stocks
The breadth of the sell-off highlights the underlying fragility of the market. According to an analysis by the Kobeissi Letter, approximately 84% of S&P 500 constituents were trading at least 10% below their respective all-time highs.
About 59% of S&P 500 stocks had fallen at least 20% from their peaks, while 41% were down more than 30%. Another 17% had lost over half their value from their respective record highs, as reported by Yahoo Finance. These figures suggest that headline index performance may not fully reflect the weakness across the broader stock market.
How to Play This Trend With ETFs?
Bet on Cash-Cows
Cash cow investing is a strategy that has gained popularity among investors seeking stable and consistent returns. The term "cash cow" refers to companies or investments that generate substantial cash flow relative to their expenses.
Dalio urged investors to look beyond headline earnings when assessing corporate strength. Free cash flow could be a useful indicator of financial health in this regard.Global X U.S. Cash Flow Kings 100 ETF (FLOW - Free Report) provides exposure to large and mid-capitalization U.S. equity securities that exhibit high free cash flow yields relative to the eligible universe of companies. The fund charges an annual fee of 25 bps. No stock accounts for more than 3% of the fund.
Short-Term Bonds
Like BlackRock, investors could consider shifting toward short-term government bonds, where higher yields have improved return potential. JPMorgan Ultra-Short Income ETF (JPST - Free Report) charges 18 bps in fees and has an annualized yield of 4.14%. As a short-term fixed-income fund, JPST appears to be a potential defensive option.
Artificial Intelligence
BlackRock has not abandoned its bullish view of the AI theme. The team continues to see strong underlying fundamentals in AI and maintains its preference for AI-related stocks within the U.S. equity market.
Note that the World Economic Forum’s September 2026 Chief Economists’ Outlook found that 97% of surveyed chief economists expect AI adoption to increase over the next 12 months — the highest level of consensus recorded on any issue in the survey.
Roundhill Generative AI & Technology ETF (CHAT - Free Report) has risen 48% so far this year and is up 4.7% over the past one month (as of Oct. 13, 2026) (read: A Guide to AI ETF Investment).
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Tough Time Ahead for U.S. Stocks? ETF Areas That Could Stay Strong
Key Takeaways
Several market watchers and specialists have grown cautious about the prospects for further gains in U.S. equities due to rising Treasury yields. BlackRock (BLK - Free Report) , the world's largest asset manager, has turned defensive on U.S. equities as rising Treasury yields and uncertainty surrounding the artificial intelligence (AI) boom threaten to fuel market volatility, as quoted on Yahoo Finance.
Billionaire investor Ray Dalio believes the stock market could face greater pressure as bond yields climb and companies struggle to translate earnings growth into stronger cash flows, as quoted on CNBC. Although corporate profits are still supporting equities, the Bridgewater Associates founder warned that this cushion may not last much longer.
The International Monetary Fund (IMF) has also warned that government bond yields could surge sharply and unpredictably as rising inflation, mounting public debt and growing AI-related borrowing strain financial markets, as quoted on CNBC.
BlackRock Downgrades U.S. Equities to Neutral
In a Tuesday research update, BlackRock strategists Jean Boivin, Rick Rieder and Wei Li raised their outlook for U.S. Treasuries while lowering their assessment of U.S. stocks to Neutral, according to the above-mentioned Yahoo Finance source.
The move signals a more cautious approach to equities after an extended period of favoring stocks over bonds. Rising yields and expectations of a hawkish Fed have led BlackRock to reduce its longstanding underweight position in Treasuries.
Market Weakness Extends Beyond a Handful of Stocks
The breadth of the sell-off highlights the underlying fragility of the market. According to an analysis by the Kobeissi Letter, approximately 84% of S&P 500 constituents were trading at least 10% below their respective all-time highs.
About 59% of S&P 500 stocks had fallen at least 20% from their peaks, while 41% were down more than 30%. Another 17% had lost over half their value from their respective record highs, as reported by Yahoo Finance. These figures suggest that headline index performance may not fully reflect the weakness across the broader stock market.
How to Play This Trend With ETFs?
Bet on Cash-Cows
Cash cow investing is a strategy that has gained popularity among investors seeking stable and consistent returns. The term "cash cow" refers to companies or investments that generate substantial cash flow relative to their expenses.
Dalio urged investors to look beyond headline earnings when assessing corporate strength. Free cash flow could be a useful indicator of financial health in this regard.Global X U.S. Cash Flow Kings 100 ETF (FLOW - Free Report) provides exposure to large and mid-capitalization U.S. equity securities that exhibit high free cash flow yields relative to the eligible universe of companies. The fund charges an annual fee of 25 bps. No stock accounts for more than 3% of the fund.
Short-Term Bonds
Like BlackRock, investors could consider shifting toward short-term government bonds, where higher yields have improved return potential. JPMorgan Ultra-Short Income ETF (JPST - Free Report) charges 18 bps in fees and has an annualized yield of 4.14%. As a short-term fixed-income fund, JPST appears to be a potential defensive option.
Artificial Intelligence
BlackRock has not abandoned its bullish view of the AI theme. The team continues to see strong underlying fundamentals in AI and maintains its preference for AI-related stocks within the U.S. equity market.
Note that the World Economic Forum’s September 2026 Chief Economists’ Outlook found that 97% of surveyed chief economists expect AI adoption to increase over the next 12 months — the highest level of consensus recorded on any issue in the survey.
Roundhill Generative AI & Technology ETF (CHAT - Free Report) has risen 48% so far this year and is up 4.7% over the past one month (as of Oct. 13, 2026) (read: A Guide to AI ETF Investment).