"Market Leaders Face a Test of Resilience": Goldman Explains How to Protect Your Portfolio

One of the most popular investment strategies on the market—buying fast-growing stocks—is going through a rough patch, but Goldman Sachs has identified several assets where investors can seek shelter from volatility, according to Business Insider. The Invesco S&P 500 Momentum ETF, which tracks the stocks that have risen the most in recent months, has lost 5% from its recent peak.

“Over the past three weeks, market leaders have been put to the test, and stocks that had previously been rising faster than the rest have experienced the sharpest sell-off since the early 2000s,” Goldman strategists wrote in a note cited by Business Insider. The bank notes that the most volatile stocks have been those of recent market leaders among chipmakers, growth stocks, and shares of Taiwanese and South Korean companies. Fluctuations in the technology sector have triggered a rotation of capital into previously less popular sectors of the economy.

— Software developers’ stocks were hit hard at the beginning of the year during the “software apocalypse.” As a result, this sector is now somewhat shielded from the turmoil that has swept through other market segments. Many of the sector’s heavily discounted stocks have already rebounded from their lows. This may indicate that investors took advantage of the opportunity to buy shares at more attractive valuations, according to Business Insider. The iShares Expanded Tech-Software Sector ETF is still down 12% year-to-date, but the software developer-focused fund has already risen by a quarter from its April low. The stocks that have risen the most over the past month are Palo Alto Networks (up 25%), CrowdStrike (up 21%), Adobe, and Snowflake (up 15%).

— “Dividend Aristocrats” — companies in the S&P 500 that have raised dividends for at least 25 consecutive years — have the weakest correlation with stock performance, which has outpaced the market in recent months, according to an analysis by Goldman Sachs. One of the funds tracking stocks in this category—the ProShares S&P 500 Dividend Aristocrats ETF—has risen 7% since the beginning of the year.

— Low-volatility U.S. stocks, by definition, have avoided much of the volatility caused by the collapse of the strategy of buying high-growth stocks, notes Goldman Sachs. The iShares MSCI USA Min Vol Factor ETF, which tracks U.S. stocks with low volatility, has risen 1% year-to-date. This ETF includes, for example, Johnson & Johnson shares, which have risen 20% since the start of the year; Cisco Systems (+45%); and Berkshire Hathaway Class B shares, which have fallen 3% since the start of January.

— Long-term and short-term bonds appear to be relatively insulated from the recent volatility, according to Goldman Sachs. The ICE BofAML MOVE Index, which measures bond market volatility and is often referred to as the debt market’s equivalent of Wall Street’s “fear index,” the VIX, has fallen from its peak reached in late March by 35%, indicating that the situation is stabilizing. This has been a challenging year for fixed-income instruments, mainly due to concerns about accelerating inflation, explains Business Insider. These concerns have led to rising yields and falling bond prices. The Vanguard Total Bond Market Index Fund ETF has lost 1% since the start of the year.

— Real estate has recently emerged as another strong market segment. This has been driven in part by the stabilization of interest rates and ongoing hopes for further rate cuts, the bank notes. The Vanguard Real Estate Index Fund has gained 10% since the start of the year, slightly outperforming the S&P 500 index.

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