Goldman Sachs is advising investors concerned about the AI sector to shift toward health care and consumer staples. This recommendation follows a decision by RBC Capital Markets to downgrade the technology sector to market weight on October 14, favoring health care instead.
Goldman Sachs analysts note that rising interest rates are increasing capital costs and dampening growth expectations. The bank projects that S&P 500 earnings growth will decelerate from approximately 29% in 2026 to 18% in 2027, as the impact of AI-related capital spending diminishes.
RBC Capital Markets observed a slowdown in earnings revisions for semiconductor and chip equipment stocks within the Russell 3000. The Philadelphia Semiconductor Index recorded an 11.4% decline for the week ending October 19, marking its largest weekly drop since April 2025.
Goldman Sachs identified 23 defensive stocks characterized by low volatility and high free cash flow yields. Notable companies on the list include Tyson Foods, which offers an 11% free cash flow yield, and CVS Health, which maintains a 9% yield.
The bank suggests that defensive industries with strong quality attributes serve as a hedge against potential market weakness. While Goldman maintains a base case of continued earnings growth, it expects lower energy prices and interest rates in 2027 to support consumer-facing stocks.
