Company Interview / Why S&P Global is moving towards US defensive sectors

Key points:

Software and services sector underperformance relative to broader techMove towards defensive sectors and value stocks amid tech pullbackLower sector correlations offer new diversification strategiesMacro events like Federal Reserve decisions and US elections seen as pivotal

Anu Ganti of S&P Global highlights ongoing volatility in software and services, describing the sector as underperforming relative to the broader Technology Select sector. Ganti points to their Software and Services Select Industry Index, which is down 9% month-to-date against a 3% decline in the broader technology index. Higher implied volatility within tech, compared to other sectors using the S&P 500 X technology Index, is noted as a sign that market uncertainty could persist.

Rotation is a key focus, with a pullback in tech and a trend towards defensive sectors like consumer staples and utilities, despite some weakness in consumer staples. There is also significant attention on the move to small caps and value stocks, a shift driven by investors seeking opportunities outside traditionally dominant tech. Ganti underscores low sector correlations as a useful toolkit for diversification and risk management, further emphasised by the performance difference within the S&P 500 top ten index, where volatility has declined due to high dispersion and low correlation with other sectors.

Macro factors such as upcoming Federal Reserve decisions and US midterm elections are identified as crucial influences for the rest of the year. Notably, the Dow crossing 50,000 points is described as a milestone, exemplifying the strength and defensive qualities of blue chip companies, with nearly $8 trillion traded in index-linked products tied to the Dow.