The stock market is silently screaming “watch out.” Yes, the S&P 500 is back at its highs, but as I’ve noted repeatedly, defensive stocks are driving those gains. Utility stocks have been ringing the risk-off bell since February, and other parts of the marketplace show that it’s a broader defensive shift.
Throw into the mix gold, the classic safe-haven asset, and suddenly you start questioning if the market is setting up bulls for a period of increased volatility just as retail investors pile in. If you dig beneath the surface, though, you’ll notice that another area of the market could soon show some meaningfully strength: healthcare. Typically, when long-only investors are bearish and exposed to equities, the best they can do to mitigate downside risk is to enter overweight positions in lower-beta, higher- dividend stocks , many of which tend to be in the utilities, consumer staples, and healthcare sectors.
Typically, you’ll see these three areas of the market outperform and underperform in unison. When investors are nervous, these stocks tend to outperform as riskier bets are taken off the table. There are several strong reasons to think that healthcare should be not just a part of, but a leader of, the rotational defense taking place beneath the surface right now.
The key is ultimately how the technology sector performs going forward. Tech has been the darling of markets for most of the past decade because of high growth rates. But, in times of market turbulen.