Under the shadow of tariffs, the US stock market is turbulent, and low-volatility stocks have become the new favorites for hedging

According to the Zhitong Finance APP, the S&P 500 index has recently plummeted significantly due to investors' concerns about the impact of U.S. tariffs on the economy, but low-volatility stocks have stood out.

Low-volatility stocks have outperformed the broader market. After two years of sluggishness, low-volatility stocks have become the best-performing investment theme of 2025, ranking first among the 13 themes tracked by Bloomberg Intelligence.

Joe Gilbert, portfolio manager at Integrity Asset Management, stated, "At least for the remainder of this year, investors will have to endure volatility. Low-volatility stocks are a safe haven for investors."

As traders expect that tariff hikes and slowing economic growth will ultimately erode corporate profits, they have pulled funds out of the stock market, and risk-averse sentiment benefits those stocks that tend to be more resilient in turbulent markets.

The S&P 500 index has fallen 4.9% from its historical high, nearly erasing a $3 trillion market value increase since the U.S. elections. Meanwhile, the two largest low-volatility exchange-traded funds (ETFs)—Invesco S&P Low Volatility ETF (SPLV) and iShares MSCI USA Minimum Volatility ETF (USMV)—are achieving their best relative performance in years.

So far this year, low-volatility stocks have outperformed the broader market.

SPLV tracks the performance of the 100 least volatile stocks in the S&P 500 index, and its performance in February exceeded the benchmark index by 5.9 percentage points, marking the largest margin since April 2022, and it saw monthly inflows for the first time since last August. During this period, USMV's outperformance over the broader market is the largest since 2019.

The outstanding performance has given these low-volatility ETFs a breather, as they have lagged behind the S&P 500 index for the past two years. Last year, their performance was at least 9.5 percentage points lower than the benchmark index.

For 22V Research's low market correlation portfolio, significantly buying some low-volatility U.S. stocks has been a successful strategy this year. So far, this portfolio has risen 6.5% in 2025, while the S&P 500 index has fallen 0.7%. Its low-volatility stocks include engineering product provider Howmet Aerospace (HWM.US), food service provider US Foods Holding (USFD.US), and energy producer Ovintiv (OVV.US).

Dennis DeBusschere, president and chief market strategist at 22V Research, stated, "The rising uncertainty, combined with the market's risk-averse trend, means that this portfolio is particularly aligned with the trends of 2025."

After months of relative calm, the uncertainty surrounding a full-scale trade war has shocked investors this week. After falling at least 1.2% on Monday and Tuesday, the S&P 500 index rebounded on Wednesday, following U.S. President Donald Trump's one-month tariff exemption for automakers, while official economic data showed mixed prospects for U.S. economic growth Stefano Pascale, head of U.S. equity derivatives strategy at Barclays, stated: "Although the de-risking actions in the U.S. market have primarily focused on technology stocks so far, disappointing data could potentially widen the scope of the sell-off."

Is a buying opportunity emerging?

For some investors, the recent decline in the U.S. stock market is starting to present buying opportunities. Strategists at HSBC indicated earlier this week that some sentiment and positioning indicators suggest that the U.S. stock market is oversold.

Bloomberg Intelligence noted that currently, U.S. communication, technology, and materials stocks are seen as the most vulnerable to trade war impacts, as these companies have the highest proportion of goods sold outside the U.S.

Bloomberg Intelligence analysts Gina Martin Adams and Nathaniel Welnhofer stated that the healthcare and consumer staples sectors, characterized by low volatility, are expected to be least affected by tariffs due to their smaller exposure in overseas markets.

The U.S. employment report set to be released this Friday could become the next key test for the U.S. stock market. Economists expect that non-farm payrolls in February will increase by 160,000, the unemployment rate is expected to remain at 4%, and average hourly earnings are expected to grow by 4.1% year-on-year