Group 1 - JPMorgan Asset Management recommends focusing on the quality factor in the stock market as AI disrupts various industries, defining quality stocks as those with strong cash flow, consistent earnings, experienced management, and competitive advantages [1][3] - The quality factor has underperformed the broader market over the past year, with quality stocks lagging behind by almost 5% in 2025, marking one of the worst stretches in nearly two decades [2][4] - Historical trends suggest that periods of quality underperformance can lead to sharp reversals, with quality stocks often outperforming during market downturns [3][4] Group 2 - The period from 2003 to 2008 exemplifies this trend, where higher-quality companies lagged for four years before outperforming by 7 percentage points in 2007 and 2008 as the economy entered recession [4] - Over the last 30 years, developed market stocks have experienced nine drawdowns of 10% or more, during which quality stocks outperformed 78% of the time, with a median excess return of 3.4 percentage points [4] - Examples of quality factor funds include the iShares MSCI Global Quality Factor ETF (AQLT) and the Vanguard US Quality Factor ETF (VFQY) [4] Group 3 - Investors leaning into quality stocks should be cautious of those with high exposure to AI stocks, as this theme could trigger the next market drawdown [5] - The Invesco S&P 500 Quality ETF (SPHQ) is highlighted as a quality fund with limited exposure to AI hyperscalers and software stocks, featuring top holdings such as Costco, Visa, and Apple [5]