Stocks: Rotation to Defensive Sectors as Yields Rise - Danske Bank

Global equity risk appetite cooled, with a clear rotation in fund flows. According to a research note from Danske Bank, global stocks faced broad selling on Tuesday, with the S&P 500 and the Euro Stoxx 600 both down 0.7% on the day. Against this backdrop, market fund flows shifted markedly, moving out of previously favored cyclical sectors and into typical defensive areas such as consumer staples and healthcare.

**Defensive Sectors See Inflows**

Danske Bank analysts observed that the recent rotation between value and growth stocks has paused, with the market's main theme shifting to defense. Signs of funds seeking safe havens were evident, with consumer staples and healthcare emerging as primary beneficiaries of this inflow, given their stable cash flows and lower earnings volatility. This move reflects investors' tendency to reduce portfolio risk exposure amid rising macro uncertainty.

**Macro Pressures Weigh on Sentiment**

Market sentiment came under pressure in close connection with ongoing volatility in the bond market. The 10-year U.S. Treasury yield has risen recently, trading near 4.54%. Shifts in rate expectations are dominating trading logic, with some traders persistently betting in related options markets on multiple rate hikes by the Federal Reserve in the coming months. Market focus is turning to upcoming U.S. inflation data, with a survey showing economists expect May annual CPI to accelerate to 4.2%. If inflation data overshoots expectations, it could reinforce concerns over the Fed maintaining a hawkish stance, thereby intensifying pressure on equities, particularly high-valuation growth stocks.

**Global Markets Decline in Tandem**

Risk-off sentiment was not limited to U.S. markets. In the Asia-Pacific region, South Korea's KOSPI index fell sharply by 6.3%, becoming the worst-performing major index, with SK Hynix plunging 9% and dragging down the chip sector. Nasdaq 100 futures moved lower in tandem, while European stocks also faced downward pressure. This cross-market synchronized decline further corroborates Danske Bank's view of a shift toward defensive positioning, indicating that investors are making a tactical retreat globally.