As CNN's Fear & Greed Index drops into the "Neutral" territory, with a measure of 54.5 compared to 56.6 the day before, investors seem conflicted between their cheerfulness over robust earnings and concern over persistent macro pressures. The market reflected that sentiment on Tuesday as the Nasdaq lost more than 100 points, the S&P 500 declined 0.49%, and the Dow lost 62 points.

But beneath the surface, all was not red. Areas such as materials and consumer discretionary recorded gains, while tech names driven by AI such as Palantir Technologies (PLTR  ) made headlines, rising 8% on beat-and-raise Q2 numbers.

As market sentiment remains cautiously optimistic, tactical ETFs are already capitalizing on this market mood swing.

Palantir Pops-AI ETFs Get A Fresh Charge

Palantir flexed its AI muscles once again, topping Wall Street's Q2 expectations on revenue and profit. The stock jumped almost 8% Tuesday, sparking renewed interest in AI-themed ETFs.

  • YieldMax AI & Tech Portfolio Option Income ETF (GPTY  ) - More diversified, but PLTR enjoys more than 8% of its holdings. Buoyed by the surge in Palantir, the fund inched up 1% on Tuesday.
  • Roundhill Generative AI & Technology ETF (CHAT  ) - a more recent player focused explicitly on AI growth trends, such as Palantir. The fund gained modestly on Tuesday and was up about 2% in the pre-market trading session on Wednesday.
With performances like Palantir's leading the way, investors who are hoping that AI will continue to be strong despite a demure market may prefer these ETFs.

Materials And Consumer Discretionary Defy The Market

While tech and utilities declined on Tuesday, materials and consumer discretionary segments defied the trend.

These are some ETFs that moved positively:

  • Materials Select Sector SPDR Fund (XLB  ) - follows industry giants in chemicals, construction materials, and packaging. The fund also ended in the green on Tuesday, and showed a slight uptick in the pre-market hours on Wednesday.
  • Consumer Discretionary Select Sector SPDR Fund (XLY  ) - features Amazon (AMZN  ) and Tesla (TSLA  ) among its prominent companies, both of which tend to be sensitive to market momentum.
Sector action implies a subdued rotation underway, potentially into segments perceived as undervalued or better protected from tech-related volatility.

Defensive Bets For A 'Neutral' Attitude Shift

Since the Fear & Greed Index no longer indicates "Greed," certain investors may prefer to reduce risk but not give up entirely.

Defensive ETF concepts:

  • Global X Defense Tech ETF (SHLD  ) -- Palantir is the top holding, accounting for more than 8% of the portfolio. The fund is up around 2% on Tuesday.
  • Invesco S&P 500 High Dividend Low Volatility ETF (SPHD  ) - provides a buffer of yield through exposure to stable, dividend-paying firms. The fund has also been moving positively since Tuesday.
Market May Be 'Neutral', But Your ETF Strategy Doesn't Have To Be

The Fear & Greed Index can indicate a pause in investor sentiment, but smart money is already shifting into sectors and themes that are leading the way. With AI stocks up, materials rising, and the consumer discretionary sector picking up pace, opportunities are in plain sight in the form of ETFs.

Whether you want to lean in with thematic growth bets or be more defensive, this "neutral" market could be the ideal time to reposition and get ahead of the sentiment pendulum again.