5 Factors to Play Defensive Now: ETFs in Focus

U.S. stocks saw mixed performance on Thursday as investors analyzed Walmart's WMT tariff-impacted earnings and assessed fresh data on retail sales and inflation to gauge the health of the economy. Moreover, the tech sector slumped on May 15. The tech-heavy Nasdaq Composite dipped 0.2%, snapping a six-day winning streak.Note that while inflation data for April remained cooler than expected, there are warning signs of future price increases. A recent Institute for Supply Management survey showed that 87% of manufacturers plan to pass on at least some anticipated cost increases to consumers.Below we highlight a few factors that demand investors need to be cautious in the near term.Trade Tensions Linger Despite India’s Tariff OfferWith enthusiasm over the U.S.-China trade truce fading, markets are now searching for the next major catalyst. On May 15, President Trump announced that India has proposed to eliminate tariffs on U.S. goods as part of a potential trade agreement.Walmart Warns of Rising Prices Amid TariffsWalmart revealed in its quarterly report that rising tariffs are forcing the company to increase prices, as it can no longer absorb the added costs. CFO John David Rainey stated that some price increases could reach double digits and will begin impacting consumers later this month.Retail Sales Slump While Inflation CoolsRetail sales saw a significant slowdown in April, rising only marginally—a sharp contrast to the consumer spending surge seen in March prior to new tariffs taking effect. At the same time, wholesale inflation unexpectedly decreased. The Producer Price Index (PPI) dropped 0.5% for the month and increased by 2.4% annually. The Consumer Price Index (CPI) also showed inflation easing to a four-year low.Fed Eyes Economic Uncertainty and Inflation VolatilityFederal Reserve officials, including Chair Jerome Powell, continue to monitor incoming data for signals about the economy’s direction. Powell emphasized growing uncertainty and warned that the United States may face more frequent “supply shocks” and unstable inflation in the near future.U.S. Recession Risks Not Out YetJPMorgan CEO Jamie Dimon said there is still “uncertainty” on the tariff front but the pauses are a positive for the economy and market. Michael Feroli, the firm’s chief U.S. economist, said in a note to clients on Tuesday that the recession outlook is “still elevated, but now below 50%,” as quoted on CNBC.Tech to Lose & Defensive to Gain?Market behavior on May 15 marked a shift in sentiment, as technology stocks lost momentum. In contrast, defensive sectors such as Utilities and Consumer Staples outperformed, each gaining more than 2% and helping push the S&P 500 into positive territory.Time for Defensive ETFs?Against this backdrop, investors can play the below-mentioned exchange-traded funds (ETFs). Although these ETFs underperformed the S&P 500 over the past month, these funds may come to your rescue if economy uncertainty remains in place. These ETFs are trading at a one-month high. These ETFs are defensive in nature.Invesco QQQ Low Volatility ETF QQLVThe underlying Nasdaq-100 Low Volatility Index seeks to track the performance of a subset of stocks within the Nasdaq-100 Index that have exhibited the least volatility over the past 12 months. The ETF charges 25 bps in fees.Cullen Enhanced Equity Income ETF DIVPThe Cullen Enhanced Equity Income ETF seeks long-term capital appreciation and current income by investing in large cap, dividend paying companies and then selectively writing covered calls on 25-40% of the portfolio holdings. The fund charges 55 bps in fees and yields 7.60% annually.S&P 500 Dividend Aristocrats ETF NOBLThe underlying S&P 500 Dividend Aristocrats Index targets companies that are currently members of the S&P 500, have increased dividend payments each year for at least 25 years & meet certain market capitalization & liquidity requirements. The fund charges 35 bps in fees.First Trust Utilities AlphaDEX Fund FXUThe underlying StrataQuant Utilities Index is a modified equal-dollar weighted index designed by the AMEX to objectively identify and select stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX screening methodology. The fund charges 63 bps in fees.US Aerospace & Defense iShares ETF ITAThe underlying Dow Jones U.S. Select Aerospace & Defense Index measures the performance of the aerospace and defense sector of the U.S. equity market. The fund charges 40 bps in fees.Want key ETF info delivered straight to your inbox?Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.Get it free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Walmart Inc. (WMT): Free Stock Analysis Report ProShares S&P 500 Dividend Aristocrats ETF (NOBL): ETF Research Reports iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports First Trust Utilities AlphaDEX ETF (FXU): ETF Research Reports Invesco QQQ Low Volatility ETF (QQLV): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks