Uncertainty Is Driving the Stock Market Right Now. History Says This ETF Could Be the Smartest Buy.

Heading into the second half of 2026, investors face both optimism and uncertainty. There is some optimism about the upcoming second-quarter earnings following a market bounce-back quarter after a rocky first quarter.

Further, while economic conditions remain tenuous due to inflation, geopolitical conflicts, and a sputtering labor market, most economists expect at least 2% GDP growth in 2026.

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On the other hand, historically high stock market valuations create uncertainty for some investors. Even with strong earnings, investors may be hesitant to pile into overvalued large-cap and AI stocks.

The best way to deal with uncertainity is through diversification. A portfolio too heavy with large-cap growth names, through S&P 500, Nasdaq, and popular technology exchange-traded funds (ETFs), results in too much of your portfolio focused on the same stocks. So if there is a correction or a crash, your whole portfolio will move in the same direction.

To balance things out, this might be the best ETF to buy right now.

iShares Russell 1000 Value ETF

While the S&P 500 had a strong second quarter and is up about 8% year to date (YTD), small and mid-cap value stocks have outperformed large-cap growth stocks. This has occurred as investors have rotated out of large-cap stocks to diversify their portfolios with smaller-cap stocks and value names.

The numbers bear this out as the S&P 500 is up 8% YTD and roughly 20% over the past 12 months. But the Russell 1000 Value index is up 15% YTD and 25% over the past year. In contrast, the Russell 1000 Growth index is only up 1% YTD and 13% over the past year.

The outperformance is more pronounced for small caps. The Russell 2000 Value index has returned 22% YTD and 41% over the past 12 months.

So, with the cyclically adjusted P/E (CAPE) ratio hovering near its highest levels since the dot-com boom in 2000, investors should consider adding a good value stock ETF to their portfolio -- like the iShares Russell 1000 Value ETF (NYSEMKT: IWD).

The iShares Russell 1000 Value ETF invests in undervalued large- and mid-cap stocks, so there will be limited overlap with broad S&P 500 ETFs, and even less overlap with technology and growth ETFs.

However, you will still get access to undervalued tech stocks, like the top three current holdings -- Amazon, Apple, and Microsoft.

The iShares ETF is up about 15% YTD and 26% over the past 12 months, beating the S&P 500. Longer term, it trails the S&P 500, with 9% annualized returns over both the 5- and 10-year periods. But many investment strategists, including Vanguard, believe that value stocks will outperform large-cap U.S. stocks over the next decade. This is mainly due to AI broadening beyond tech, large-cap valuations, and investors rotating into less risky assets.

So, IWD is an excellent option right now for both short-term diversification and solid long-term growth.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, and Microsoft. The Motley Fool has a disclosure policy.