"Investors are getting nervous": Wall Street has seen a rise in interest in defensive stocks

Investors have started to heed analysts' warnings about overheating, Bloomberg writes. Wall Street noticed that market participants have become more selective and prefer high-quality and "protective" securities to high-risk ones. Nevertheless, they are not going to give up shares for fear of losing profit on the market that is updating records.

Citigroup experts have noticed the first signs that investors are returning to value stock-oriented strategies, Bloomberg reports. According to the bank, in July and early August they were looking for undervalued companies with solid financials. This led to a decline in quotations of unprofitable technology companies and other speculative assets, Bloomberg writes.

A Goldman Sachs-tracked basket of companies in the S&P 500 Index with the strongest balance sheets last week posted their best returns since early April relative to companies with weaker balance sheets. For example, securities of companies with significant cash reserves - such as Fastenal, Palantir and West Pharmaceutical Services - have appreciated for three consecutive weeks. That's the longest streak of gains since April. Telecoms, utilities and insurance companies are performing particularly well, as are giants such as Philip Morris, whose shares have jumped 40% since the start of the year, said Colin Cyzynski, portfolio manager and chief market strategist at SIA Wealth Management.

Rotation in portfolios allows investors who have concerns about a prolonged rally to stay in stocks, but reduce the share of more vulnerable securities, Bloomberg explains. Choosing in favor of financially stable issuers helps reduce the risk of loss if S&P 500 growth begins to slow.

"We sense that investors (...) are getting nervous," said Brian Jacobsen, chief economist at Annex Wealth Management. - In the current environment, it's worth being cautious."

Despite the nervousness, investors continue to actively buy stocks, fearing to miss the rally, notes Bloomberg. Last week's capital inflow into individual stocks was the largest in two years, with money flowing into both defensive and cyclical sectors, the agency adds, citing BofA data. Optimism in the market is also supported by the consensus of Wall Street strategists, who are "bullish": they advise to buy back drawdowns, assuming that without recession there will be no serious correction.

The Cboe Volatility Index, Wall Street's main "fear barometer," fell to its lowest level in a year on Wednesday at 14.5. While it was just above 20 earlier this month, today it is nearing its lowest close since Dec. 24 of last year, Barron's notes. A value below 20 usually indicates that investors are in a relaxed mood after months of instability amid trade disputes, the publication adds.

"It would be foolish to fight this stock market rally, even if the fundamentals on which it is holding seem extremely shaky. At some point, rising yields on long-term US government bonds will hit stocks - unless they stumble on their own or we get another surprise move from Trump. But there's no need to prematurely play that scenario," said Bloomberg strategist Mark Cudmore.

Since April 8, the S&P 500 index has added 29% and closed at a new record on Tuesday. The main driver of stock growth was investor excitement around AI, which resulted in the capitalization of Nvidia and Microsoft exceeding $4 trillion. Strong corporate reporting also supported traders' confidence that Donald Trump's unpredictable trade policy did not cause the expected damage to the economy. Nevertheless, if you break down the growth of the S&P 500 by sector, it becomes clear: almost all of the index's earnings growth came from technology companies and related industries, which masked weakness in consumer goods and industrial equipment manufacturers, Bloomberg notes.

Experts have been warning for weeks about the risks associated with such a high dependence of S&P 500 growth on just a few "Magnificent Seven" companies, Bloomberg notes. They fear the bull market is already "overripe," having lasted longer than average. "The bull has aged and conditions are shaping up for the start of a bear market," Tim Hayes, chief global investment strategist at Ned Davis Research, wrote Aug. 7. In addition, the ratio of rising stocks to falling stocks has worsened: if you remove the influence of tech giants on the S&P 500's rise, it would have declined in 10 of the last 13 sessions, the agency adds.

This article was AI-translated and verified by a human editor