Trump’s surprise announcement of new tariffs on China sent equities tumbling. The S&P 500 ETF (NYSEARCA: SPY) closed the day down 2.7% and broke below its 10- and 20-day SMA, a warning sign for short-term momentum. The big talking point came in the after-hours on Friday, though. When Bitcoin, Ethereum, and the broader cryptocurrency market experienced flash crashes, an overleveraged event occurred, wiping out a sea of positions and retail crypto accounts.
Then, just two days later, on Sunday, de-escalation. Comments from Trump and Vice President JD Vance emphasized de-escalation with China and commitments toward working together to achieve favorable outcomes in the future.
And as a result, in the early hours of Monday’s pre-market, the S&P 500 ETF, SPY, has already erased close to half of Friday’s losses. Similarly, Bitcoin is back above $115,000, after dipping below $110,000 on Friday.
As markets look to regain their footing and even sweep Friday’s action under the rug as a potential misunderstanding and isolated crypto leveraged event, the action serves as an important reminder: if the markets do turn lower in the coming weeks or months, or if the AI boom takes a breather, where might investors' capital be best suited?
What stocks and sectors could benefit during a market pullback or healthy correction? Let’s take a look at five stocks that historically hold up well during a market correction.
Gold: A Safe Haven in Turbulent Times
It's no coincidence that the price of gold per ounce, along with the SPDR Gold Shares ETF (NYSEARCA: GLD), is lingering close to record highs right now. Gold has long been revered as a reliable asset during eras of economic doubt, serving as a classic safe-haven investment. When markets face headwinds like trade disputes, international conflicts, or rising worries about a slowdown, investors tend to gravitate toward gold to preserve their capital.
In the past few years, GLD has significantly outpaced the S&P 500 benchmark, which is unusual for this asset class. Year-to-date, GLD has surged a remarkable 50%, and over the last five years, it's up more than 107%, compared to an 88% rise in the SPY ETF during the same timeframe.
Are investors already shifting toward gold in anticipation of upcoming volatility? This kind of superior performance is definitely noteworthy, particularly with more interest rate reductions on the horizon and signs of a softening job market.
What sets gold apart from equities or fixed-income securities is its independence from any specific economy or corporation, allowing it to maintain or even appreciate when other assets decline. Additionally, gold excels at countering inflationary pressures.
In times when central banks ramp up money supply or currencies depreciate, gold's limited availability sustains its appeal. For those looking to gain exposure to this metal without dealing with physical storage, GLD stands out as an accessible option. It tracks the spot price of gold bullion and trades like a stock on major exchanges. With low expenses and high liquidity, GLD makes it straightforward for portfolios to incorporate this protective element.
Consumer Staples: Reliability in Essentials
From a chart standpoint, the consumer staples sector hasn't exactly dazzled this year. With technology and AI-driven names still propelling the market upward amid rampant speculation and a risk-on environment, there's little incentive to park money in defensive plays like staples. As a result, the sector is down slightly more than half a percent year-to-date and trailing far behind.
However, that dynamic flips if sentiment shifts from bullish to cautious. That's evident from Friday's action, where the Consumer Staples Select Sector SPDR Fund (NYSEARCA: XLP) actually gained ground while the broader market tumbled. If a sustained downtrend emerges, this divergence could widen considerably.
Consumer staples represent a sturdy defensive strategy amid instability because consumers continue purchasing necessities regardless of economic pressures. These include household must-haves like toothpaste, toilet paper, breakfast cereals, and cleaning products from giants such as Procter & Gamble, Coca-Cola, Walmart, and Johnson & Johnson.
Demand remains consistent even as budgets contract, granting these firms an advantage over more cyclical areas like technology or discretionary retail.
Moreover, many players in this space are dividend powerhouses, delivering reliable distributions that bolster returns when capital appreciation slows. They're not the glamorous picks that yield explosive gains like tech darlings, but they prioritize dependability and endurance.
During past recessions, such as the 2008-2009 financial meltdown, staples sectors frequently bested overall market benchmarks, underscoring their role as a protective shield. The XLP ETF captures this resilience by tracking the consumer staples component of the S&P 500, including top holdings like Costco and Walmart.
With a low expense ratio, 2.7% dividend yield, and broad exposure, it allows investors to tap into this stability without picking individual names. In the context of current events, like the tariff-induced volatility, XLP could see inflows as traders rotate out of high-beta stocks.
Dividend Yielding ETFs: Income Stability Through Diversification
Dividend-oriented ETFs emerge as a wise selection in volatile periods due to their blend of consistent payouts and broad market exposure via an exchange-traded fund structure. These vehicles aggregate shares from dependable industries such as utilities, consumer goods, and healthcare.
Areas that are typically known for regular dividend distributions, providing a steady cash flow even as equities wobble. This revenue stream can act as a buffer, available for reinvestment or withdrawal, which mitigates the impact of declining share values and injects reliability when speculative growth areas falter.
What enhances the allure of dividend ETFs in choppy waters is their emphasis on high-quality enterprises. They typically prioritize firms with robust financial health and proven dividend histories, which generally weather storms more effectively.
The Vanguard High Dividend Yield ETF (NYSEARCA: VYM) exemplifies this approach by mirroring the FTSE High Dividend Yield Index, focusing on U.S. companies with elevated dividend rates (excluding real estate investment trusts). It boasts a 2.55% yield, an ultra-low net expense ratio of 0.06%, and assets under management nearing $66 billion, making it a cost-effective gateway to income-focused investing. In today's landscape, with tariff uncertainties and potential AI sector pauses looming, VYM could attract attention for its defensive tilt. Overall, VYM stands as a pragmatic tool for those aiming to fortify their holdings with income and spread risk effectively.
The Coca-Cola Company: A Dividend Aristocrat With Enduring Demand
For those preferring targeted bets over baskets, individual blue-chip consumer staples can shine during market slumps, as seen in the relative outperformance of names like Coca-Cola and McDonald's amid the February-March weakness this year. Coca-Cola (NYSE: KO) exemplifies this strength with its 3.04% dividend yield and an impressive 64-year streak of annual dividend hikes, earning it Dividend King status.
In its Q2 2025 earnings released on July 22, 2025, the company reported earnings per share of 87 cents, surpassing estimates by 4 cents, while revenue climbed 2.5% year-over-year to $12.50 billion. What positions KO as a defensive standout in downturns is its unbreakable consumer loyalty and global footprint.
Beverages like Coke, Sprite, and Dasani are habitual purchases, immune to economic swings. And people don't cut back on affordable refreshments even in tough times. This inelasticity shields revenues, unlike discretionary sectors hit by reduced spending.
KO's diversified portfolio also adds layers of protection. During past corrections, such as the 2022 bear market, KO often traded sideways or gained modestly while indices dropped, thanks to its brand moat and efficient operations. In a scenario where tariffs disrupt supply chains or AI hype fades, KO could benefit from flight-to-quality moves, with its cash flows supporting dividends.
McDonald's Corporation: Fast-Food Resilience and Value Focus
Rounding out the list, McDonald's (NYSE: MCD) offers another compelling individual defensive play, backed by a 2.38% dividend yield and 49 consecutive years of dividend growth. Its Q2 2025 results, announced on August 6, 2025, featured an EPS of $3.19, beating the consensus of $3.15 by $0.04. Revenue increased by 5.4% to $6.84 billion, exceeding forecasts of $6.68 billion.
MCD's defensive prowess stems from its value-oriented model and ubiquitous presence; affordable meals remain a staple during belt-tightening, driving traffic even in recessions.
The franchise-heavy structure generates steady royalty income with minimal capital outlay, insulating it from direct economic hits. Initiatives like menu deals, app loyalty programs, and drive-thru efficiency enhance stickiness, while international diversification mitigates U.S.-centric risks.
In prior pullbacks, like the 2022 bear market or April tariff war, MCD rebounded swiftly, outperforming the broader market during periods of heightened uncertainty and risk-off sentiment.
Amid current market jitters, the stock could draw safe-haven flows, as consumers trade down to budget options. With strong free cash flow fueling dividends, MCD serves as a reliable anchor, potentially outperforming in corrections by capitalizing on everyday needs.
Whilst a correction may not happen in the short term, these five ETFs and stocks offer varied paths to portfolio protection, emphasizing safe havens, essentials, and income. While no investment is foolproof, their historical resilience suggests they could mitigate downside in uncertain times.
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The article "5 Stocks and ETFs to Weather Volatility as Trade Tensions Rise" first appeared on MarketBeat.
