Investor sentiment shifts to safer bets amid market uncertainty

Technology stocks, which have fueled market rallies in recent years, have experienced increased volatility throughout 2026. Concerns surrounding artificial intelligence, including its impact on capital expenditure, cash flow, and debt, have contributed to these fluctuations. The U.S. midterm elections, which saw Democrats gain control of Congress, further intensified pressure on the tech sector last week.

The Nasdaq Composite Index, a key indicator of tech stock performance, is up approximately 8.7% since the beginning of the year as of November 9th. However, it experienced a 5.3% decline in October and remains down 0.7% for November, after briefly entering correction territory. The index, which includes major tech companies like Nvidia, Microsoft, Alphabet, and Apple, has shown some recovery recently.

South Korea’s Kospi index, heavily influenced by the semiconductor industry, has also seen significant losses, decreasing by 16.2% in October and more than 8% so far this month. The broader MSCI World Information Technology index fell by 7% in October and an additional 4.6% in November, while MSCI’s U.S.-focused IT index has dropped 11.5% since October.

Conversely, stocks in traditionally defensive sectors like consumer staples, healthcare, and utilities have gained traction. These sectors are often viewed as safer investments during times of market volatility.

Alastair Pinder, HSBC’s head emerging markets and global equity strategist, characterized recent market movements as “vicious, and in our view, overdone” in a note released Monday. He suggested that the market is already factoring in potential challenges with artificial intelligence development. “With US semiconductors trading on a 12-month forward PE of 13.5x after a 45% de-rating since June, how much more pain is there to price?” he asked.

Pinder also noted that underlying financial fundamentals appear to be generally sound. He added that the shift towards defensive stocks appears excessive, pointing out that Walmart’s valuation stands near a record high at 40 times forward earnings, while Nvidia’s is near a record low at 13 times.

Investment director at AJ Bell, Russ Mould, echoed the sentiment, describing the current market environment as being “in a state of alert.” He emphasized the importance of sector rotation and the adage that a strong stock in a weak sector can outperform a weak stock in a strong sector.

Analysis of the S&P Global 1200 reveals that healthcare and consumer staples have been the top performers in the second half of 2026, following energy, which has benefited from rising oil prices related to the U.S.-Iran war. The IT sector, previously the top performer with a 28.4% increase in the first half of the year, has now become the worst-performing sector, declining by over 11%.

“Information Technology has gone from penthouse to outhouse and slumped from being the best performer to the worst,” Mould stated. He highlighted the resilience of energy, consumer staples, and healthcare, while noting the weakness in industrial stocks. These trends may reflect concerns about the economic outlook for the coming year and potential deflation of an “AI bubble.”