Are cracks forming in the stock market’s bull run?
Over the last month, the U.S. stock market has shown signs of shifting priorities. That’s because, surprisingly, the top-performing sectors weren’t the usual suspects. They weren’t the high-flying artificial intelligence (AI), technology, or defence industries, but the more stable and defensive healthcare, utilities, and gold sectors. These sectors, seen as safe havens, suggest that at least some investors are bracing for turbulence.
It certainly raises the question: Are cracks forming in this bull market?
It may pay not to ignore the recent outperformance of the S&P500’s healthcare, utilities, and consumer staples segments. That these sectors, known for their resilience in economic downturns – because they provide essentials like medicine, electricity, and everyday goods, which tend to hold steady regardless of economic conditions – outperformed suggests a notable rotation in expectations.
Perhaps it’s just a short-term response to the coincident increase in volatility.
On 10 October, 2025, markets took a hit amid renewed trade tensions between President Trump and Chinese leader Xi Jinping. As The Wall Street Journal (WSJ) recently noted, some investors are taking an increasing interest in China, “withholding rare-earth minerals, attempting to smuggle crop diseases into the U.S. to harm food supply, pre-positioning electronic devices to cripple American telecommunications and emergency-response systems, and subsidising the production and export of chemicals used to manufacture fentanyl.”
This month, the WSJ also noted, “Beijing’s standard playbook is to accept Western businesses until it has developed a credible challenger, then to exclude Western companies from the Chinese market and flood overseas markets with Chinese goods.”
“China spends roughly 5 per cent of gross domestic product on industrial subsidies”, amounting to conquest economics, driving competitors out of business and making them dependent on China.”
Although the S&P 500 quickly recovered, sitting just 1.4 per cent below its 8 October record, the undercurrents are suggesting caution.
Other defensive investments rise
It appears investors are also turning to traditional safe havens like bonds and gold. The 10-year Treasury yield has dipped nearly half a percentage point over the past three months, falling below 4 per cent for the first time in a year. Meanwhile, gold has soared to new record highs, amid hedging against uncertainty.
In combination, the moves this month suggest an increasing appetite for assets that can weather economic and financial storms.
Warning signs
It’s not just the defensives that have outperformed. Sectors tied to economic growth in the U.S. are faltering. Regional banks, retailers, home builders, and airlines have seen sharp declines over the past month.
And then there are the high-profile bankruptcies, including auto-parts supplier First Brands and auto lender Tricolor. Their collapses have sparked concerns about hidden weaknesses in the market, particularly in U.S. private credit space, where a third of all loans have been written by just three issuers.
Perhaps unsurprisingly, analysts studying Distance to Default (D2D) metrics suggest credit risk in the U.S. is being understated and have the raised the possibility of a sudden widening in BB spreads (junk bonds demanding a higher yield). Indeed, the ICE BofA U.S. High Yield Index shows the extra yield demanded for junk-rated corporate bonds has hit its highest level since June.
Major institutional investors BlackRock, M&G and Fidelity International have are reportedly reducing their exposure to riskier corporate debt and pivoting towards safer corporate and government bonds. So while equity investors skip to work with the S&P 500 trading close to record highs, corporate bond traders are revealing growing risk aversion in credit markets.
JPMorgan Chase CEO Jamie Dimon’s recent comment channelling Charlie Munger, “When you see one cockroach, there are probably more,” reflects concerns among some investors the recent bankruptcies point to broader structural issues. That certainly seems to be the view among Wall Street traders who have marked Jefferies Financial Group, a lender to First Brands, down 27 per cent in a month, while also selling down major private credit firms like KKR and Apollo Global Management.
A little optimism remains
Equity analysts estimate S&P 500 companies will grow their earnings by 16 per cent over the next year. If they’re right, that would be up there with the earnings growth experienced coming out of COVID. And there’s also rate cuts, the market effects of which many are optimistic about.
And then there’s the upcoming earnings from major technology companies including Tesla, Netflix, and Intel, along with consumer inflation data. But of course, they are extremely short-term catalysts at best.
It’s worth noting the aggregate earnings number is boosted by AI spending. Down in the real world, U.S. consumer spending has reportedly stagnated, despite expected tax cuts, and the labour market is also said to be cooling.
As the gold price climbs vertically and defensive sectors in the U.S. market outperform, one should ask whether the bull market’s momentum is fading. The shift toward safety reveals some investors are preparing for a few bumps in the road ahead.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
