Goldman Sachs analysts, led by Ben Snider, highlight that the equity market is adjusting its growth expectations due to increased pressure from interest rates and the rising cost of capital. They note that AI capital spending, which currently accounts for about half of S&P 500 earnings growth, is expected to decline as spending growth slows. The analysts observed a 6% drop in their Cyclicals vs.
Defensives pair over the past two weeks, indicating a significant shift in investor positioning. In light of these developments, Goldman recommends focusing on stocks in defensive sectors with strong quality attributes, particularly those that have underperformed recently.
Among the stocks identified, Tyson Foods stands out with an 11% trailing four-quarter free cash flow yield and a 3.72% dividend yield, despite a nearly 17% decline in its stock over the past six months. CVS Health is also noted for its 9% free cash flow yield and a 2.88% yield, although its stock has seen a 15% drop in the last three months.
Goldman maintains a base case for continued earnings growth and anticipates a potential recovery in consumer-facing stocks, supported by expected declines in energy prices and interest rates by 2027, which could bolster household spending