Risk-aversion sentiment is rising in US equities! JPMorgan: Funds are beginning to rotate into low-volatility stocks, but there has not yet been a large-scale exit from risk assets.

JPMorgan's latest research shows that as macroeconomic uncertainty increases and tech stock volatility intensifies, the multi-month U.S. equity rally is facing a test. More and more investors are beginning to shift funds into stocks with relatively lower price volatility to reduce potential losses from a market decline. Data from JPMorgan's equity strategy and quantitative research team shows that as of October 27, the crowding indicator for low-volatility stocks in the S&P 500 rose to 17.9%, placing it in the 18th historical percentile. In June of this year, this indicator was once near its historical low. Simply put, this means that earlier this year, investors were generally more willing to chase stocks with larger gains and higher risk, and showed little interest in stocks with relatively stable price movements. But in recent months, this situation has been changing, with more and more institutional investors beginning to increase their allocations to low-volatility stocks again. It is worth noting that this indicator reflects positioning across the entire market, not just retail investors' trading behavior, and therefore also shows that institutional investors such as fund managers are adjusting their investment strategies. Factors driving this change include the earnings performance of large technology companies and market concerns over the return prospects of artificial intelligence (AI) investments. Tech giants such as Alphabet (GOOGL.US), Amazon.com, Inc. (AMZN.US), Microsoft Corporation (MSFT.US), and Meta (META.US) continue to invest huge amounts of capital in building AI infrastructure, but investors are increasingly worried about whether these expenditures will generate sufficient revenue and profit in the future. At the same time, AI company Anthropic's public filing of listing registration documents, uncertainty in Brazil's political situation, and the approaching U.S. midterm elections have further intensified cautious sentiment in the market. Against the backdrop of multiple intertwined risk factors, some investors have begun to reduce allocations to stocks with greater price volatility and instead buy relatively stable stocks, preparing in advance for possible market turbulence before the end of the year. However, JPMorgan noted that although the popularity of low-volatility stocks is rising, investors' current allocation to such stocks remains at a historically low level, far below the levels seen during the 2020 pandemic shock or the 2025 tariff shock. This indicates that although signs of rising risk-aversion sentiment have appeared in the U.S. equity market, investors have not yet made a large-scale exit from risk assets. As funds gradually shift toward defensive investments, some stocks with relatively low price volatility that also receive high quantitative ratings are worth watching. According to Seeking Alpha's quantitative rating data, medical diagnostics company CareDx (CDNA.US) received a score of 4.99, close to the highest score of 5. Energy companies Marathon Petroleum (MPC.US) and Valero Energy (VLO.US) both received 4.98, while Phillips 66 (PSX.US) and PBF Energy (PBF.US) both received 4.97. Several companies in the healthcare sector also made the list, including Eton Pharmaceuticals (ETON.US), Halozyme Therapeutics (HALO.US), and health insurer Centene (CNC.US), with scores of 4.96, 4.94, and 4.93, respectively. In addition, hotel real estate investment trust DiamondRock Hospitality (DRH.US) received 4.95, and energy company HF Sinclair (DINO.US) received 4.94. A common feature of these stocks is that over the past two years their share prices have been relatively less affected by broad market moves, so they may be favored by investors hoping to reduce portfolio volatility risk. Seeking Alpha's quantitative ratings comprehensively examine factors such as valuation, growth potential, profitability, analyst earnings estimate revisions, and share price performance. However, relatively low price volatility does not mean there is no investment risk, and these stocks may still suffer significant declines when the market falls. Overall, JPMorgan's data indicate that U.S. equity investors' risk appetite is changing. Although funds have not yet flooded into defensive stocks on a large scale, the popularity of low-volatility stocks has rebounded markedly from mid-year this year, showing that more and more investors are beginning to prepare for potential market volatility.