Flocking to defensive stocks paid off for investors this week

Equity performance this week depicted a tale of two very different markets, and one trade preserved against the turbulence: playing defense. Technology stocks sold off rapidly as growth scares resurfaced on Wall Street following a swath of weak labor market data. That sent shockwaves across equities, pummeling some of 2024’s leading artificial intelligence names. The Nasdaq Composite tumbled more than 2%, while all the Magnificent Seven stocks notched losing weeks. Nvidia registered its worst week since 2022, while the VanEck Semiconductor ETF (SMH) marked its worst week in more than four years. Stocks tied to industry also lagged as economic worries and fears of a behind-the-curve Federal Reserve rattled investors. A slew of industrials, materials and financial stocks finished lower, with Caterpillar and JPMorgan Chase shedding about 7% and 5% this week, respectively. Defensive stocks such as consumer staples and utilities, however, provided a safe haven for investors, buoyed by gains from Procter & Gamble , Colgate-Palmolive and Philip Morris International . The rotation into more cyclical names isn’t such a new phenomenon. D.A. Davidson’s James Ragan notes that since the end of June, markets have been trending more toward value over growth. “It’s prudent to have a little more defensive exposure here, and we think the sector rotation could continue,” the firm’s director of wealth management research said.