Defensive stocks are playing an increasing role in the market rally and this may be a bad sign

This stock market rally to records is starting to look shaky.

The S&P 500 touched a record on Tuesday ahead of an expected rate cut from the Federal Reserve, but looking under the hood, investors are increasingly flocking to one of the safest pockets of the market — defensives.

Health care stood out as the best-performing sector on Tuesday, lifted by Pfizer, Merck and HCA’s earnings beats. Consumer staples and real estate stocks also outperformed. However, growth and more cyclical names — tech, communication services and consumer discretionary — have started to show signs of weakness.

“The S&P 500 is back at all time highs but with even greater defensive leadership it may warrant investor caution with respect to a growth reacceleration,” Mike Wilson, Morgan Stanley’s U.S. chief equity strategist, said in a note to clients.

Investors know it all too well that record highs have barely been an all-clear sign. Just days after the S&P 500 last hit a record on July 26, stocks took a big hit on the escalated U.S.-China trade war and recession scares. The trade uncertainty is still a top-of-mind concern for investors as the two countries have yet to offer a clear path to a long-term resolution.

Source: CNBC

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