Goldman Sachs is steering investors worried about the artificial intelligence (AI) trade toward health care and consumer staples stocks.
Goldman’s call comes less than a week after RBC Capital Markets cut tech to market weight. On October 14, RBC recommended health care in its place.
Rising Rates Put the AI Earnings Engine Under Pressure
Goldman’s case starts with interest rates. Analysts led by Ben Snider said months of rate pressure have raised concerns over the cost of capital. In turn, the stock market has lowered its growth expectations.
“A sharp reduction in investor positioning has amplified equity market moves,” the analysts said.
Goldman’s Cyclicals vs. Defensives pair fell 6% in the past 2 weeks, meaning cyclical stocks underperformed defensive ones.
That matters for index investors, since Goldman estimates AI capital spending drives about half of S&P 500 earnings growth. The bank expects that share to shrink as spending growth slows. It also sees S&P 500 earnings growth cooling from around 29% in 2026 to 18% in 2027.
RBC reached health care through a different signal. Lori Calvasina, its head of US equity strategy, said the pace of upward earnings revisions remains strong for tech overall. However, that pace has started to slow somewhat for semiconductor and chip equipment stocks in the Russell 3000.
Chip stock prices also weakened that week. The Philadelphia Semiconductor Index ended the week down 11.4%, its steepest weekly loss since April 2025.
Goldman’s Defensive Shortlist Leans on Cash Flow
Goldman also screened for individual stocks. The list holds 23 health care and staples names with low volatility and high free cash flow yields.
| Company | YTD performance |
|---|---|
| Tyson Foods | -7.9% |
| Royalty Pharma | +56.0% |
| CVS Health | +16.8% |
| JM Smucker | +29.9% |
| Kroger | +0.9% |
| Cardinal Health | +22.9% |
| HCA Healthcare | -2.6% |
| Hormel Foods | -14.1% |
| Performance Food Group | +6.4% |
| Sysco | +10.7% |
| Kenvue | +9.4% |
| Hershey | -8.2% |
| US Foods | +33.3% |
| Merck | +36.5% |
| ResMed | -0.5% |
| Quest Diagnostics | +35.4% |
| Chemed | +18.8% |
| Abbott Laboratories | -16.9% |
| Mondelez International | +17.7% |
| McKesson | +23.2% |
| Church & Dwight | +24.1% |
| AbbVie | +23.7% |
| Colgate-Palmolive | +18.2% |
Some have recently lagged but could catch up if investors suddenly cut earnings growth expectations. Tyson Foods has the list’s highest free cash flow yield at 11% over the trailing 4 quarters.
Its shares have fallen nearly 8% since the start of 2026. Over the past 6 months, the stock is down about 16.8%, closing at $54 on October 19. It carries a 3.72% dividend yield.
CVS Health made the cut with a 9% free cash flow yield. The stock has gained nearly 17% since the start of 2026 but slipped 15% over the past 3 months. It yields 2.88%.
Goldman strategists also told clients that health care has typically been among the best-performing parts of the S&P 500 when growth is positive but slowing.
Still, Goldman’s base case calls for continued earnings growth. Its economists expect weaker energy prices and falling rates in 2027 to lift household spending and lagging consumer-facing stocks.
The defensive screen covers the other scenario. According to the bank, investors worried about a weaker outcome “should focus on stocks in defensive industries with ‘quality’ attributes.”
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