In Turbulent Markets, Go Low-Volatility

By Mike Burnick

Editor’s Note: Earlier today, Mike Burnick and the TradeSmith Education Team hosted a live walkthrough of the platform’s latest tools, including updates to Quantum Edge Pro, Signals, and the Screener. If you couldn’t make it, here’s one of the key strategies Mike highlighted in the session. 

Renewed stock market turbulence has a lot to do with rising interest rates, as I pointed out in my last column. 

Yields on the 30-Year U.S. Treasury Bond remained above 5% this week, while short-term Treasury rates topped 4%.  

That’s well above the current Federal Funds rate of 3.5%, signaling that Fed interest rate hikes are more likely than rate cuts. 

But here’s the good news: the right low-volatility, high-quality stocks don’t just protect you from the turbulence – they can actually help you profit from it.  

And the strategy to find them starts with understanding what’s really driving this volatility in this first place.  

Why Rising Rates Favor Low-Volatility Stocks 

Rising rates are, of course, driven by fears over surging inflation. And those fears zoomed into sharp focus this week. Both consumer and producer price inflation kept rising last month. 

The May Consumer Price Index (CPI) jumped 4.2% year over year (shown above) – the biggest increase in more than three years. 

Even worse, this morning’s Producer Price Index (PPI) surged 6.5% from a year ago, the biggest back-to-back increase since 2022!  

Higher producer prices eventually trickle down into even higher retail prices as companies pass along cost increases to consumers. 

This creates a negative feedback loop: Persistent inflation drives interest rates higher, and higher rates fuel more market volatility. 

Higher interest rates and inflation also make stocks less appealing.  

That’s because future cash flow from stocks are discounted at a higher rate – reducing their present value. 

And which is exactly why low-volatility stocks deserve a closer look.  

Low-Volatility Stocks for Your Best Defense 

In this climate, low-volatility, high-quality stocks are a great way to ride out this market turbulence. 

In fact, research shows that they tend to perform similarly to the S&P 500, but with about 20% less drawdown risk when markets turn volatile. 

Our own TradeSmith research confirms this. That’s why we developed our proprietary risk measure, the Volatility Quotient (VQ%) many years ago.  

VQ is the foundation of our TradeSmith data, measuring each stock’s “normal” volatility (or risk) based on its historical price behavior.  

We classify stocks by VQ range from lowest to highest: 

VQ Risk Range 

  • Up to 15% → Low Risk 
  • 15% – 30% → Medium Risk 
  • 30% – 50% → High Risk 
  • 50% and above → Sky-High Risk 

With this in mind, I revisited some of my favorite TradeSmith Screeners and combined a few filters aiming to uncover low volatility and high-quality stocks. 

Simply log into your TradeSmith Finance account and click on Invest from the main menu, then select Screener from the sub menu.  

Please Note: If you do not see this feature on your dashboard – and would like to – simply call our Customer Care Team at 888-623-0858 to find out more.   

Next, I added just three simple filters to search for low volatility, high-quality stocks in the S&P 500 Index. 

The key screener filters shown above are: 

  • Risk (VQ%) less than 20% – the lowest risk stocks in our database 
  • Business Quality Score more than 80 – the top 20% of stocks we rank by quality 
  • Markets: S&P 500 (SPX) 

Putting the Screener to Work 

Simply click on the +Add Filters tab to add these, along with any other of your favorite filters you want to use.  

You can further customize your screen by adding other fundamental, valuation, market classification, and other TradeSmith proprietary filters – or cast a wider net by including another market other than the S&P 500 like the Russell 2000 for small-cap stocks. 

When I ran this screener yesterday, I got 71 results. That’s a good starter list for additional research.  

You can sort the results any way you like by simply clicking on that column heading. Due to space limitations, the top 10 results of my screen, sorted by Free Cash Flow Yield (highest first), are shown above. 

Mike Burnick’s Bottom Line: In a volatile market climate, you’ll want to consider shifting your investments toward high-quality, low-volatility stocks. The TradeSmith Screener shown here is a great place to start finding stocks with the potential to deliver gains – even in a turbulent stock market. 

Good investing, 

Mike Burnick 
Senior Analyst, TradeSmith 

P.S. The low-volatility screener strategy is a smart way to protect your portfolio in turbulent times. But what if you could do more than just ride out the turbulence? 

That’s exactly what TradeSmith CEO Keith Kaplan and investment legend, Louis Navellier revealed in yesterday’s special event, and it couldn’t have come at a better time. 

Together, they unveiled a breakthrough new AI that combines Navellier’s Stock Grader system – which is built on trillions of data points and perfect over nearly 50 years – with TradeSmith’s proprietary short-term signals. 

The backtested results speak for themselves: it could’ve turned a 4% gain on Dover into a 1,341% winner… flipped a 9% loss on Fastenal into a 462% gain… and delivered a 225% gain on Trilogy Metals in just 4 days.  

But there’s an urgent reason to watch now. Navellier is making a brand-new prediction about a potential correction he believes could hit as early as June 16 – and what you need to do to get ahead of it. 

The full replay is available for a limited time. Click here to watch it before it’s gone.