Most Corrections Don’t Result in Bear Market: ETFs to Buy

The S&P 500 officially entered correction territory last week, falling 10% from its February all-time highs. Market sentiment has massively worsened in recent weeks as concerns over political uncertainty and trade war weighed on investors’ psyche. The S&P 500 has lost 7.8% over the past month (as of March 14, 2025).

Shift in Market Sentiment

Citi US equity strategist Scott Chronert noted a sharp reversal in investor sentiment. “The sentiment and the client and investor focus has completely swung upside down versus where we started the year,” he told Yahoo Finance.

Entering 2025, Wall Street had anticipated strong economic growth and continued outperformance of US equities. However, concerns over President Trump’s policies — such as tariffs, federal job cuts and strict immigration measures — have led to downward revisions in GDP in recent weeks.

No Recession in Sight

Despite the correction, analysts remain optimistic about U.S. stocks overall. While economic concerns have risen, most experts are not predicting a recession. BlackRock’s chief investment and portfolio strategist for the Americas, Gargi Chaudhuri, maintains a bullish stance on U.S. equities, as quoted on Yahoo Finance. Chaudhuri sees the current upheaval as a healthy pullback.

Yardeni Research recently lowered its 2025 S&P 500 target from 7,000 to 6,400 (as quoted on Yahoo Finance), which still represents a 14% increase from the current levels. However, this adjustment was based on valuation expectations rather than weaker earnings growth. Yardeni Research still expects good earnings growth.

History Suggests This Correction Less Likely to Cause a Bear Market

Historical data suggests that corrections rarely lead to bear markets. Research from Carson Group strategist Ryan Detrick shows that since World War II, the S&P 500 has experienced 48 corrections, but only 12 turned into bear markets — a 75% probability that a correction does not worsen further. Per Detrick, uncertainty and “choppiness” are normal in the post-election year, as quoted on Yahoo Finance.

Fast Corrections = Fast Recoveries?

BMO Capital Markets strategist Brian Belski emphasized that swift corrections typically lead to equally speedy recoveries. With fundamentals still strong, Belski remains confident of his 6,700 year-end S&P 500 target, as quoted on Yahoo Finance.

ETF Picks

Against this backdrop, below we highlight a few beaten-down exchange-traded funds (ETFs) that could be bought on the dip.

Vanguard Financials ETF (VFH Quick QuoteVFH – Free Report) – Zacks Rank #1 (Strong Buy)

Performance One-Month: Down 7.7%

P/E (36 Months): 17.30X

Forward Yield: 1.74%

If the market recovers and inflation remains in a moderate range, the yield curve may steepen and benefit finance stocks. Hopes of deregulation will act as another tailwind.

SPDR Dow Jones Industrial Average ETF (DIA Quick QuoteDIA – Free Report) – Zacks Rank #1

Performance One-Month: Down 6.7%

P/E (36 Months): 20.39X

Forward Yield: 1.59%

If Trump’s protectionist agenda and tariff war drive up domestic inflation, we may see a less-dovish Fed. A less-dovish Fed and a high-rate environment is a headwind to high-growth tech stocks and a plus for value-centric financials stocks.  And since the Dow Jones has a better value quotient than the S&P 500 and the Nasdaq, the former could fare better in such a scenario.

SPDR Portfolio S&P 500 ETF (SPLG Quick QuoteSPLG – Free Report) – Zacks Rank #1

Performance One-Month: Down 7.7%

P/E (36 Months): 23.73X

Forward Yield: 1.30%

The fund is heavy on big tech stocks. As said before, any spike in inflation is a negative for such growth stocks and ETFs. However, valuation adjustments in recent weeks should work in favor of these growth stocks once the market steadies.  Investors might flock to growth ETFs like SPLG on valuation correction and become part of the hot AI boom.

SPDR Portfolio S&P 500 High Dividend ETF (SPYD Quick QuoteSPYD – Free Report) – Zacks Rank #1

Performance One-Month: Down 0.6%

P/E (36 Months): 14.04X

Forward Yield: 4.26%

Exposure to high-dividend ETFs is always a plus amid market uncertainty. Even if there is a capital loss, higher current income goes a long way in safeguarding one’s portfolio.

Utilities Select Sector SPDR ETF (XLU Quick QuoteXLU – Free Report) – Zacks Rank #1

Performance One-Month: Down 0.3%

P/E (36 Months): 19.19X

Forward Yield: 2.90%

Utilities are hot bets now. These stocks can be bought to tap the ongoing AI boom. The AI boom has spurred a surge in demand for data center capacity to handle AI workloads. This higher need for energy has boosted the appeal for utilities.

Also, being a low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or safe haven amid economic or political turmoil.