By David Wainer
When investors fret over geopolitical shocks, they usually rotate into safe havens such as consumer staples and healthcare. That was the case in 2022, when Russia's invasion of Ukraine sent already-surging inflation even higher.
That isn't happening this time.
Since the start of the war, an unusual bifurcation has emerged. Energy has surged, as one might expect. Less obviously, tech and software stocks have also advanced, while traditional safety plays such as healthcare and packaged food have sold off.
The Health Care Select Sector ETF is down roughly 4% and the Consumer Staples Select Sector ETF has lost about 5%, even as the Technology Select Sector ETF has advanced moderately. The S&P 500 is down roughly 1% over that time.
In other words, the usual playbook has broken down. And the reasons why reveal something important about where the real opportunities lie.
One explanation for why these groups haven't worked well is that this has been a rotation within a rotation. In the weeks leading up to the war, investors had already been seeking shelter in defensive names, fleeing uncertainty around artificial intelligence and richly valued tech stocks. By the time hostilities began, those defensive sectors were already crowded -- and no longer quite as cheap.
Counterintuitively, the war ended up giving AI a brief reprieve. "The market's gaze shifted from white-collar labor displacement and SaaS-mageddon to war," says Nick Puncer, a managing director at investment firm Bahl & Gaynor. Tech, largely unburdened by oil exposure or complex global supply chains, suddenly looked like the cleaner trade.
There is a second, deeper reason these sectors aren't working right now. Both healthcare and consumer staples are grappling with structural challenges that have little to do with missiles or oil prices. In food, companies such as General Mills and Campbell's face mounting competition from store brands, the pressures of a K-shaped economy, and the emerging threat that GLP-1s could reshape snacking habits. Campbell's fell 7% on Wednesday after reporting weakness in its snacks business.
In healthcare, managed-care giants such as UnitedHealth Group, Centene and Humana are caught between relentless government pressure to curb healthcare spending and a surge in medical costs.
Still, within the wreckage lie opportunities.
First, the stocks that have held up since the war began share one trait: They are more concentrated in the U.S. The top 20 performers in the S&P 500's healthcare and consumer-staples sectors -- including Kraft Heinz and Gilead Sciences -- generate an average of about 72% of their revenue in North America, according to FactSet data. In contrast, the bottom performers, such as Estée Lauder and Baxter International, rely far more heavily on international markets, with an average North American exposure of about 59%. (The ranking strips out health insurers, which tend to do 100% of their business in the U.S.)
The lesson -- already reinforced by the pandemic and the Russia-Ukraine war -- is that during geopolitical shocks, geography still matters. A global footprint can expose companies to ripple effects from Middle East conflict, such as supply-chain disruptions and energy-driven cost pressures to their customers. Even in Europe, impacts from the oil and gas disruption will be more severe given the continent's heavier reliance than the U.S. on imported energy.
Defensive stocks have lagged behind for now, but that doesn't mean they won't make a comeback, particularly if AI-related concerns return. The sector's pause during the war may even be creating opportunities. Given the unique structural challenges facing these industries and the possibility of a higher-for-longer rate environment, investors shouldn't chase rock-bottom valuations but rather stick to reliable growth, argues Traver Davis, a healthcare strategist at Citi.
One common yardstick is the PEG ratio, which divides a company's price/earnings multiple by its expected earnings growth rate. The lower the PEG, the more growth investors are getting for each dollar they pay.
The pharma sector, which had momentum before the war but got caught up in the market's rotation, has many names that screen well on this measure. AbbVie, which continues to expand its immunology franchise beyond Humira, trades at one of pharma's lowest growth-adjusted valuations. Eli Lilly also screens as inexpensive by PEG standards, not because its stock is cheap in absolute terms, but because earnings are growing rapidly. GE HealthCare, which has been pummeled during the war, also looks relatively inexpensive relative to its growth.
In food, the pickings are thinner. Much of the growth in U.S. food spending has accrued to retailers, which continue to take shelf space and pricing power from branded manufacturers through private labels. While some packaged-food stocks appear cheap -- and a few, like Kraft Heinz, have held up relatively well thanks to their domestic focus and discounted valuations -- the sector still faces meaningful structural headwinds.
J.M. Smucker, recently targeted by Elliott Investment Management, offers comparatively better growth prospects. Its business is mostly in the U.S. and is more reliant on coffee and pet food, two areas that have suffered less from store brands. Coca-Cola, Mondelez International, McCormick and Hershey -- all down between 5% to 10% since the war started -- also stand out as companies that are delivering reliable growth in categories that remain relatively insulated from private labels, even if they still don't look as cheap.
Healthcare and consumer staples aren't working as clean hedges against war. But if AI-related uncertainty returns -- as many investors expect it will -- these sectors are likely to regain their appeal.
The investors who fare best will be those who use the sector's underperformance during this war to identify the right names, at the right price.
Write to David Wainer at david.wainer@wsj.com
(END) Dow Jones Newswires
March 12, 2026 05:30 ET (09:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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