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More analysts are recommending “defensive” shares over AI plays as macro conditions change.
Utilities, a classic defensive sector, are going toe-to-toe with tech.
With some questioning the AI rally, investors could benefit from non-tech growth companies, an analyst said.
Defensive recommendations have taken center stage on Wall Street as the artificial intelligence trade shows signs of being overextended and as economic conditions change.
Utility stocks — a common buy when times look tough — have gone toe-to-toe with the technology sector’s blowout performance this year. Year-to-date, the utilities and tech sectors have gained 22.08% and 25.69%, respectively.
Defensive sectors of the stock market, which can also include real estate and consumer staples, tend to be better plays when macro conditions look to be softening. As employment data has weakened in recent months, investors are growing nervous about a coming downturn.
Meanwhile, though the sector has staged a comeback this week, leading AI names have struggled to find their footing, with Nvidia facing tough questions about returns on AI investments by companies. The broader S&P Global Semiconductor Index is down 5.63% for the month.
As the AI trade takes a bit of a breather, and as data shows the economy may be cooling, more analysts are recommending investors take shelter in defensive corners of the stock market.
Bank of America said investors should avoid buying the tech dip, noting that market volatility is set to pick up over the long term. In addition to dividend-paying utilities, it also suggested investors seek real estate exposure.
Similar to BofA’s call, Morgan Stanley’s Mike Wilson last week called the AI theme “overcooked” and said investors should shift to defensive shares.
According to Brad Conger, CIO of investment firm Hirtle Callaghan, some of the S&P 500’s more “boring” companies are at the heart of the defensive theme.
“Our positioning is that there are a lot of great growth businesses that are undervalued because of both the excitement around tech and AI,” Conger told…
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