Investors are moving toward defensive stocks as turbulence in technology shares signals growing caution across equity markets. The sector that helped power rallies in recent years has faced repeated bouts of volatility in 2026, with questions about artificial intelligence spending, cash flow, debt and circular financing unsettling investors. The Democrats' sweep of Congress in the U.S. midterm elections added to pressure on technology stocks last week.
The Nasdaq Composite remained about 8.7% higher for the year at the Nov. 9 close, despite losing 5.3% in October. The technology-heavy benchmark, which includes Nvidia, Microsoft, Alphabet and Apple, has recovered some ground in recent days after entering correction territory last week. Even so, it was still down 0.7% for November.
Other technology-focused benchmarks have also suffered substantial declines. South Korea's Kospi, which has considerable exposure to semiconductor companies, fell 16.2% in October and has lost more than 8% so far this month. The MSCI World Information Technology index dropped 7% in October before declining another 4.6% in November. MSCI's index tracking only U.S. information technology stocks has fallen 11.5% since October.
Defensive sectors have moved in the opposite direction. MSCI indexes covering consumer staples, healthcare and utilities have all recorded significant gains over the past month. Those sectors are generally regarded as more stable parts of the stock market when uncertainty or volatility rises. Russ Mould, investment director at AJ Bell, said in a Monday note that shifts in investors' sector exposure suggested markets were in a "state of alert."
An AJ Bell analysis of 11 broad sectors in the S&P Global 1200 found that healthcare and consumer staples were the strongest performers in the second half of 2026 after energy. Energy stocks have benefited substantially from rising oil prices following the U.S.-Iran war. Information technology, meanwhile, has swung from first-half leader, with a gain of 28.4%, to the weakest second-half performer, falling more than 11%.
Alastair Pinder, HSBC's head emerging markets and global equity strategist, argued in a Monday note that the recent market moves had gone too far. He said share prices already reflected greater risks around AI execution and delays in capital expenditure, while fundamentals remained broadly healthy. U.S. semiconductor stocks were trading at 13.5 times expected earnings over the next 12 months after a 45% valuation de-rating since June, he noted.
Pinder also pointed to the widening valuation gap between defensive and technology stocks. Walmart was trading at 40 times forward earnings, close to a record high, while Nvidia stood at 13 times, near a record low. Mould said strength in energy, consumer staples and healthcare, alongside noticeable weakness in industrials, could reflect concerns about the economic outlook for 2027 and whether an AI bubble was beginning to deflate.
