Investors are shifting money into stocks with defensive and high-quality characteristics U.S. stocks saw a strong reversal in fortunes in October, as worries about dwindling free cash flows and rising borrowing costs threw a wrench into the artificial-intelligence trade. Tech stocks were punished, with the S&P 500’s information-technology sector snapping back-to-back monthly gains to drop 6.8% for its worst month since March 2025, FactSet data showed. Investors — spooked by fears that companies may not deliver the payoff they had expected from AI despite continuing to pour money into building data centers — leaned into traditionally more defensive parts of the equities market.
They’re also eyeing high-quality stocks to help mitigate sudden tech blows. Friday’s clobbering of the Invesco S&P 500 Momentum ETF , which tracks stocks in the U.S. large-cap equities index that have a high momentum score and whose portfolio is heavily weighted toward tech, left the exchange-traded fund with a 10.1% loss in October. The iShares MSCI USA Momentum Factor ETF , which seeks to capture market trends by investing in U.S. stocks with strong recent performance, booked a similar drop of 10.5% in October, according to FactSet data.
I would like to receive updates and special offers from Dow Jones and affiliates. I can unsubscribe at any time. Marta Norton, Empower’s chief investment strategist, also pointed to stocks with quality characteristics as desirable in the current environment, citing their “lower levels of debt, consistent earnings streams and a measure of growth embedded in the revenue profile.” While tech’s struggles in October dragged the S&P 500 and Nasdaq Composite Index into the red, high-quality stocks generally appeared to hold up amid the AI-related carnage.
Take the iShares MSCI USA Quality Factor ETF , which aims to invest in U.S. stocks with stable earnings and low debt. The fund ended October with a slight 0.1% gain, according to FactSet data. By contrast, the tech-heavy Nasdaq fell 5.3% in October, cementing its worst monthly performance since March 2025, according to Dow Jones Market Data.
As the AI trade’s recent comeback violently reversed in October, investors have sought shelter in Treasury bonds while also taking cover in traditionally defensive stock-market sectors, like healthcare , utilities and consumer staples . The State Street Consumer Staples Select Sector SPDR ETF , the State Street Utilities Select Sector SPDR ETF and the State Street Health Care Select Sector SPDR ETF all saw enormous rallies in October. The consumer staples ETF, whose top three holdings as of Thursday included Walmart , Costco Wholesale and Procter & Gamble Co.
PG, soared 10.9% in October. That huge gain left the State Street Consumer Staples Select Sector SPDR ETF with its largest monthly gain ever since it began trading in 1998, according to Dow Jones Market Data. While consumers still appear to be spending despite sticky inflation, purchases of discretionary items risk falling off if the stock market experiences a big drawdown that makes investors worried about a drop in their wealth, Russell Price, chief economist at Ameriprise Financial, told MarketWatch by phone.
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