The months-long rally in US equities is being tested by rising macroeconomic uncertainty and increased volatility in technology shares, prompting more investors to shift money into stocks with relatively smaller price swings to reduce potential losses if the market declines, according to new research from JPMorgan.
Data from JPMorgan's equity strategy and quantitative research team show that, as of October 27, the crowding gauge for low-volatility stocks in the S&P 500 rose to the 17.9th percentile, sitting at the 18th percentile historically. In June, that measure was close to its lowest level on record.
Simply put, earlier this year investors were broadly more willing to chase higher-return, higher-risk stocks and showed little interest in steadier names. Over the past few months, however, that has begun to change, with more institutional investors adding back exposure to low-volatility stocks. Notably, the gauge reflects positioning across the entire market, not just retail trading activity, which means fund managers and other institutional investors are adjusting their strategies.
Factors driving the shift include earnings performance from large technology companies and market concerns about the return prospects for artificial intelligence (AI) investments. Tech giants such as Alphabet, Amazon, Microsoft and Meta continue to pour huge sums into building AI infrastructure, but investors are increasingly worried about whether that spending will generate sufficient revenue and profit in the future.
At the same time, AI company Anthropic's public filing for an IPO, political uncertainty in Brazil and the approaching US midterm elections have further heightened caution. Against a backdrop of multiple overlapping risks, some investors have begun trimming exposure to higher-volatility stocks in favor of steadier names, preparing ahead of potential market turbulence before the end of the year.
Still, JPMorgan noted that while low-volatility stocks are gaining popularity, allocations to this group remain historically low and are far from the levels seen during the COVID-19 shock in 2020 or the tariff shock in 2025. That suggests that although risk-aversion is rising in US equities, investors have not yet made a large-scale retreat from risk assets.
As money gradually shifts toward defensive investments, some stocks with relatively smaller price swings that also earn high quantitative ratings are worth watching. According to Seeking Alpha's quantitative ratings, medical diagnostics company CareDx received a score of 4.99, close to the maximum of 5. Energy companies Marathon Petroleum and Valero Energy each scored 4.98, while Phillips 66 and PBF Energy each scored 4.97. Several healthcare names also made the list, including Eton Pharmaceuticals, Halozyme Therapeutics and health insurer Centene, with scores of 4.96, 4.94 and 4.93, respectively.
In addition, hotel real estate investment trust DiamondRock Hospitality scored 4.95, and energy company HF Sinclair scored 4.94. A common trait among these stocks is that over the past two years their share prices have been relatively less affected by broad market moves, which may make them appealing to investors looking to reduce portfolio volatility. Seeking Alpha's quantitative ratings take into account factors including valuation, growth potential, profitability, changes in analysts' earnings expectations and share price performance.
However, relatively lower price volatility does not mean there is no investment risk, and these stocks can still suffer significant declines when the market falls. Overall, JPMorgan's data indicate that risk appetite among US equity investors is changing. Although money has not yet flooded into defensive stocks on a large scale, the popularity of low-volatility shares has rebounded clearly from the middle of the year, showing that more investors are beginning to prepare for potential market swings.
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