Despite the dangers that have come from tariffs, the Iran war, rising inflation, a hawkish Federal Reserve, and slowing economic growth, the S&P 500 has enjoyed only a lightly interrupted rise higher since its 2022 low.
Investors have enjoyed strong returns from tech and growth stocks thanks to the artificial intelligence build-out, which has pushed earnings growth to its highest level in four years.
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But three straight years of double-digit percentage returns (and very possibly a fourth in 2026) means that it’s a good time to level-set and take stock of where investors stand. These kinds of streaks are historically rare, and there’s a high risk that stocks could correct following lengthy bull markets. This most famously occurred right before the tech bubble burst in 2000, and it also occurred most recently in 2022.
This is where risk minimization becomes just as important as return maximization. If there’s one piece of advice I’d give investors under the current conditions, it’s this: Don’t forget about fundamentals!
If growth starts to slow or another macroeconomic risk emerges, it’s usually the fast-growing or more speculative stocks that get hit the hardest. Focusing on investing in stocks backed by financial strength usually means they can weather more challenging economic climates. In market downturns, these companies often hold up best and can provide some degree of downside protection.
Owning high-quality stocks in a portfolio is always a good idea. It’s especially the case if you’re unsure where the market and the economy are headed next.
David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
