Stock Market Volatility: History Says This 1 Investing Move Is More Important Than Ever Before

While the artificial intelligence (AI) boom has been great for stock market investors over the past few years, there are a few signs that the rally might be getting exhausted.

The “Magnificent Seven” stocks, which had been pushing the major averages consistently higher, are all down over the past three years. All of them except Apple (NASDAQ: AAPL) were in correction territory as the first half of 2026 ended, though Alphabet (NASDAQ: GOOGL) has since ticked up as well.

Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »

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Given the underperformance of these stocks and of growth stocks in general, it’s time to acknowledge that no boom lasts forever. Investors may be looking for options that are more defensive and inexpensive than their choices over the past few years.

One of the best ways to position your portfolio for this is to focus on quality stocks. These are companies with healthy balance sheets that generate lots of cash flow. Their business models are also such that they can withstand multiple economic environments, both good and bad.

Picking individual winners is notoriously challenging, so buying an exchange-traded fund (ETF) that owns a portfolio of these companies might be the better path.

The one that I prefer is the Invesco S&P 500 Quality ETF (NYSEMKT: SPHQ). It has a 42% allocation to tech currently — understandable, given that’s where the biggest earnings and revenue growth is coming from. But it also has 15%-20% allocations to both industrials and financials, as well as meaningful exposure to consumer staples stocks.

The fund is also weighted roughly 80% to large caps and 20% to mid- and small caps. This is a profile that not only pairs well with ETFs that track the S&P 500 and total stock market, but also provides protection for the next market downturn. Durability and diversity is what investors should look for concentration risk runs high.

When conditions get challenging, running for the exits is usually the wrong move. It’s better to focus on high-quality companies that have been through it all before.

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David Dierking has positions in Apple. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.

Stock Market Volatility: History Says This 1 Investing Move Is More Important Than Ever Before was originally published by The Motley Fool