Use recent counter-trend rally in S&P 500 to buy defensive stocks

Investing.com -- Stifel told investors in a note Monday that the recent bounce in the S&P 500 is a chance to rotate into defensive sectors, warning that Big Tech’s reputation as a safe haven could falter later this year.

Stifel analysts believe the current market optimism around tech is misplaced. “We continue to expect sharply slowing U.S. core GDP and believe the ‘Tech is defensive’ narrative is at risk in 2H25,” they wrote.

The firm added that “the U.S. consumer, propped up by COVID-era fiscal and tight labor markets, followed by an A.I. build-out, has underpinned the notion since 2021 that Big Tech is largely unaffected by economic volatility.”

However, Stifel feels that the assumption may no longer hold. According to the firm, a looming consumer pullback and a decline in business investment could weigh heavily on earnings.

“We forecast downside risk for GDP and Big Tech in 2H25 due to a consumer pullback resulting from pressure on real (after inflation) wage income along with reduced fixed investment,” the analysts wrote. 

Notably, they said that “since 2021, 53% of all non-residential fixed investment was Tech.”

Earlier this year, Stifel recommended overweighting Defensive Value in sectors like Staples, Healthcare, Utilities, and high-quality stocks, a strategy that outperformed through April. 

“That trade of Defensive Value relative to Cyclical Growth peaked at +44% YTD on April 10th,” they said. 

But since then, the market has shifted back toward growth, with the S&P 500 retracing nearly 79% from its lows.

Now, Stifel sees the recent counter-trend rally as “an opportunity to add exposure to Defensive Value,” with a view that earnings pressure and a lower S&P 500 price-to-earnings ratio will weigh on markets in the second half of 2025.