Investors pivot to defensive stocks as markets enter a 'state of alert'
Money is rotating out of technology into healthcare, staples and utilities after a bruising October, with strategists split over how far the defensive shift can run.
Tech falls from first to worst
Technology has gone from the market's best performer to its worst in a matter of months. The Nasdaq Composite is up around 8.7% since the start of the year as of the November 9 close, but it shed 5.3% in October and is down 0.7% for November so far after dipping into correction territory last week. South Korea's Kospi, heavily exposed to semiconductors, lost 16.2% in October and is down more than 8% so far this month.
The MSCI World Information Technology index lost 7% in October and a further 4.6% so far this month, while the MSCI U.S.-only IT index is down 11.5% since October. Information technology rose 28.4% in the first half of the year, the best of the 11 so-called super-sectors, then tumbled more than 11% in the second half to become the worst.
- Nasdaq in Octoberdown 5.3%
- Kospi in Octoberdown 16.2%
- MSCI World IT in Octoberdown 7%
- MSCI US IT since Octoberdown 11.5%
- IT in the first halfup 28.4%
'State of alert'
Russ Mould, investment director at AJ Bell, described equity markets as being "in a state of alert, judging by how investors are rotating their sector exposures." In AJ Bell's analysis of 11 so-called super-sectors in the S&P Global 1200, healthcare and consumer staples have been the best performers in the second half of 2026 so far, after energy.
Alastair Pinder, HSBC head of emerging markets and global equity strategist, wrote in a note on Monday that recent moves had been "vicious, and in our view, overdone." He noted US semiconductors trade on a 12-month forward price-to-earnings ratio of 13.5 times after a 45% de-rating since June, and added that "the rotation into defensives looks extreme." Walmart trades on 40 times forward earnings, near a record high, while Nvidia trades on 13 times, near a record low.
What is driving the rotation
Investors are questioning artificial intelligence spending, cash flow, debt and circular financing, worries that have sparked repeated bouts of volatility in 2026. The Democrats' sweep of Congress in the midterm elections amplified the pressure on the sector last week. Money has moved toward healthcare, consumer staples and utilities, whose MSCI indexes have all risen significantly over the last month.
Tuesday's session showed the split: the S&P 500 fell 0.4% to 7,520.93, the Nasdaq fell 0.7% to 25,065.87 and the Dow fell 0.3% to 52,231.89. This post summarizes reported facts and our view of the risks. It is not a forecast and not investment advice.
