Investors pivot to defensive stocks as markets enter a ‘state of alert’

Markets are in a "state of alert," according to analysts monitoring a pivot from riskier tech sector bets into defensive stocks.

Technology stocks — a key driver of rallies in recent years — have been notably volatile in 2026. Concerns about artificial intelligence — particularly when it comes to capital expenditure, cash flow, debt and circular financing — have sparked multiple bouts of volatility this year.

The Democrats' sweep of Congress in the U.S. midterm elections amplified pressure on the sector last week.

Wall Street's tech-heavy Nasdaq Composite Index is up by around 8.7% since the start of the year as of Nov. 9 close, but gave up some of its year-to-date gains in October when it shed 5.3% over the course of the month. The index — home to Big Tech names including Nvidia , Microsoft , Alphabet and Apple — has staged a recovery in recent days, but remains in the red for November and is down 0.7% for the month so far after dipping into correction territory last week.

The Nasdaq isn't the only tech-focused index to have seen big losses over the past month. South Korea's Kospi index, which is heavily exposed to the semiconductor sector, lost 16.2% in October and is down more than 8% month-to-date.

The MSCI World Information Technology index lost 7% in October, and has shed a further 4.6% so far this month. MSCI's U.S.-only IT index is down 11.5% since October.

At the same time, stocks in defensive sectors have seen broad gains.

MSCI's indexes encompassing the consumer staples, healthcare and utilities sectors — widely seen as more stable assets in the equity market during times of volatility or uncertainty — have all risen significantly over the last month.

In a note on Monday, Alastair Pinder, HSBC's head emerging markets and global equity strategist, said recent moves in stock markets had been "vicious, and in our view, overdone."

"The market is already pricing greater execution risk and capex delays," he said, referring to the development of artificial intelligence. "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 added that fundamentals broadly appear healthy.

"The rotation into defensives looks extreme," he said. "Walmart trades on 40x forward earnings, near a record high, while Nvidia trades on 13x, near a record low."

Russ Mould, investment director at AJ Bell, described equity markets as being "in a state of alert, judging by how investors are rotating their sector exposures."

"Such movement matters, and can help stock pickers with their selections, bearing in mind the old adage that 'a bad stock in a good sector will outperform a good stock in a bad sector,'" he said in a note on Monday.

AJ Bell's analysis of 11 so-called "super-sectors" in the S&P Global 1200 shows that, in the second half of 2026 so far, healthcare and consumer staples stocks have been the best performers after energy — a major beneficiary of surging oil prices in the wake of the U.S.-Iran war.

The IT sector, the data shows, has gone from being the best-performing sector in the first half of the year on a 28.4% rise, to the worst performer in the second half after tumbling more than 11%.

"Information Technology has gone from penthouse to outhouse and slumped from being the best performer to the worst," Mould said.

"Energy has been resilient as have Consumer Staples and Healthcare, while Industrials have been noticeably weak. These trends could reflect nagging worries over the economic outlook for next year, as well as worries over whether air is leaking out of an AI 'bubble.'"