Key Points in This Article:
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The stock market is rising despite growing risks, including falling durable goods orders, uneven earnings, upcoming tech reports, global tensions, and political friction, signaling potential volatility.
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A spike in the VIX could indicate an imminent market correction, unraveling recent gains as investor complacency fades.
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Defensive investments focused on stable sectors and low-volatility stocks can help shield portfolios from significant losses in a crash.
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The stock market continues its precarious ascent, navigating a “wall of worry” — a term that describes a rising market despite mounting economic and geopolitical concerns.
Today, the market hovers near record highs, but underlying risks are intensifying. Corporate earnings are increasingly uneven, with major tech firms like Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Meta Platforms (NASDAQ:META) set to report soon, potentially sparking sharp market moves.
The U.S. Census Bureau’s latest durable goods orders report, released today, showed a 9.3% month-on-month decline in headline orders for June — milder than the expected 10.4% drop, but it follows a strong prior month. Core orders (excluding transportation) rose a modest 0.2%, signaling persistent weakness in manufacturing demand.
While the smaller-than-expected drop offers some relief, the data still points to ongoing economic slowdown pressures, which could increase market volatility. Add to that global trade tensions, geopolitical instability, and domestic political friction with the Federal Reserve, and the stage is set for a potential tipping point.
Investors are currently ignoring these risks and weak market internals, but this resilience may not last. A spike in the VIX could signal that recent gains are starting to unravel. Amid this uncertainty, two ETFs stand out as defensive options to shield your portfolio from a potential major crash.
Vanguard Consumer Staples ETF (VDC)
In times of market turmoil, consumer staples shine as a beacon of stability. The Vanguard Consumer Staples ETF (NYSEARCA:VDC) offers exposure to companies producing essential goods — think food, beverages, and household products. These are items people buy regardless of economic conditions, making the sector a haven during downturns.
VDC holds 109 companies, including giants like Procter & Gamble (NYSE:PG), Walmart (NYSE:WMT), and Costco (NASDAQ:COST), which boast consistent demand and resilient revenue streams. With an expense ratio of just 0.09%, it’s a cost-effective way to gain defensive exposure.
During a market crash, investors often flock to staples as a safe bet, reducing the ETF’s downside risk compared to broader market funds. Its focus on necessities insulates it from the wild swings that hit growth-heavy sectors like technology. VDC also provides a steady dividend, offering income to cushion against capital losses.
By anchoring a portfolio in this sector, investors can weather economic storms with greater confidence, knowing their holdings are tied to businesses that thrive even when markets falter.
Invesco S&P 500 Low Volatility ETF (SPLV)
For those seeking equity exposure with a safety net, the Invesco S&P 500 Low Volatility ETF (NYSEARCA:SPLV) is a compelling choice. This ETF tracks the 100 least volatile stocks in the S&P 500, emphasizing sectors like consumer staples, utilities, and healthcare — areas known for their stability in turbulent times.
With an expense ratio of 0.25%, SPLV balances risk and reward by prioritizing companies with steady performance over those prone to wild price swings. During a market crash, high-volatility growth stocks often take the hardest hits, while low-volatility stocks tend to hold their ground. SPLV’s diversified holdings reduce single-stock risk, and its monthly dividend distributions provide a buffer against declines.
By focusing on firms with proven resilience, SPLV offers a way to stay invested in equities while reducing the risk of severe losses during a market collapse. Its design makes it an ideal anchor for portfolios bracing for heightened volatility, allowing investors to maintain market exposure without experiencing the full sting of a downturn.
Key Takeaway
As the market climbs this towering wall of worry, the risks of a sharp correction loom large. Economic data, earnings reports, and global uncertainties could converge to spark a significant sell-off. While no investment is immune to market declines, strategic choices can make a difference.
These two ETFs, with their focus on stability and resilience, offer a way to protect your portfolio from the turbulence of a potential crash, helping you navigate the uncertainty with greater peace of mind.
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