Investors are pulling back from artificial intelligence equities, where subsectors like NeoCloud and optical networking have fallen sharply from their highs. Lou Miller from Goldman Sachs recommends reallocating capital into healthcare, which pairs historical stability with practical upside from AI-driven diagnostic tools. Conversely, he advises avoiding traditional defensive havens such as consumer staples because their current valuations remain elevated. Market performance through late 2026 will heavily depend on macroeconomic indicators, corporate earnings, and the Federal Reserve's December 9 policy decision.
Key points
Healthcare represents an appealing defensive alternative that is poised to benefit from a…: Healthcare represents an appealing defensive alternative that is poised to benefit from artificial intelligence diagnostics and medical tools.
Goldman Sachs recommends investing in the S&P 500 excluding artificial intelligence due t…: Goldman Sachs recommends investing in the S&P 500 excluding artificial intelligence due to more favorable valuations and earnings growth.
Active investors face headwinds in late 2026 but may see a modest year-end rally ahead of…: Active investors face headwinds in late 2026 but may see a modest year-end rally ahead of the December 9 Federal Reserve decision.
Sources checked by our analysis pipeline: 1
The US midterm elections could accelerate the ongoing rotation in stock markets, with healthcare emerging as a potential defensive investment amid a correction in artificial intelligence (AI)-related stocks, according to Lou Miller, global head of custom basket trading at Goldman Sachs.
Speaking on Goldman Sachs' The Markets podcast, Miller said investors had already started moving towards defensive positions ahead of the elections, amid a challenging environment for active investors in the second half of 2026.
"We've seen people get very defensive. If you look at beta-adjusted net exposure in our prime book, it's definitely at very low levels versus history," he said.
Miller pointed to sharp declines in several segments of the AI investment theme. Data centre stocks have fallen 36% from their highs earlier this year, while memory stocks have declined 42%, optical networking stocks 46% and NeoCloud stocks 57%.
However, he said the correction had lowered expectations and could leave room for positive surprises.
"I think the silver lining is the bar is much, much lower for surprises and there are positive catalysts ahead," he said.
Domestic equities faced significant macroeconomic headwinds over the past year, burdened by an unexpected 54.11% surge in crude oil and a depreciating currency that lagged double-digit rallies in major Asian and European markets. Despite these systemic drags, strong gains in defensive and cyclical sectors like pharma and metals prevented steeper baseline drawdowns. A recent technical rebound above key resistance has sparked optimism for institutional inflows ahead of the upcoming traditional trading cycle.
Market participants are navigating a technical rebound that reclaimed critical long-term moving averages after rebounding from the 22,700–22,800 threshold. However, immediate-term indicators suggest momentum is stretched as indices encounter strong overhead resistance, setting up a potential period of consolidation. Traders must also factor in reduced liquidity and shorter execution windows due to a holiday-shortened calendar.
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