Song Qinghui: Investors are gradually shifting from overvalued growth stocks to defensive assets and cash instruments.

How AI and Geopolitical Risks Are Reshaping Asset Allocation Strategies for U.S. Stock Investors

“Investors are gradually shifting from high-valuation growth stocks to defensive assets and cash instruments,” said renowned economist Song Qinghui. He noted that rising geopolitical risks have caused U.S. stocks to decline for four consecutive weeks, prompting investors to move from “emotional selling” to “rational pricing.” On one hand, conflicts in the Middle East have pushed up oil prices and inflation expectations, putting pressure on U.S. stock valuations; on the other hand, the U.S. economic fundamentals remain resilient, with employment and consumption still strong, providing market support. He believes that U.S. stocks have not entered a “systemic bear market” and are currently in a phase of uncertainty pricing, with the core variable shifting from “growth expectations” to “risk premiums.”

Analysis suggests that in the short term, U.S. stocks are likely to exhibit “high-level oscillation and structural differentiation,” and it is recommended to allocate to defensive sectors to manage risks. (Bloomberg)

(Hong Kong Wen Wei Po Reporter Ni Weichen, Shanghai report) Remarks by U.S. President Trump that “he does not want a ceasefire” have intensified market panic. As of last Friday’s close, the S&P 500, Nasdaq, and Dow Jones fell by 1.51%, 2.01%, and 0.96%, respectively, with weekly declines of 1.9%, 2.07%, and 2.11%. All three indices have fallen for four consecutive weeks. Wall Street traders indicate that the conflict between the U.S., Israel, and Iran shows no signs of stopping, and with inflation expectations rising again, investors are reassessing Federal Reserve policies. In a tightening financial environment, the S&P 500 faces risks shifting from “controlled pullbacks” to “full corrections.” The analysis states that the U.S. economic fundamentals have not significantly deteriorated; the resilience of employment and consumption will continue to support U.S. stocks. However, ongoing developments in Middle East conflicts further increase market uncertainty, and in the short term, U.S. stocks are expected to show “high-level oscillation and structural differentiation,” with a recommendation to allocate to defensive sectors.

Last week, technology stocks in the U.S. underperformed, precious metals and mining stocks were suppressed by a strong dollar and high U.S. interest rates, while energy stocks rose against the trend. Healthcare and consumer staples performed steadily. The “Big 7” tech stocks (Mag 7) declined by 2.57% last week. Among them, Tesla, Nvidia, Microsoft, Meta, Amazon, Apple, and Google A fell by 5.94%, 4.19%, 3.46%, 3.18%, 1.11%, 0.85%, and 0.42%, respectively. Market sentiment around artificial intelligence (AI) remains cautious. During the week, storage stocks performed strongly, with Western Digital, SanDisk, and Seagate Technology rising by 7.64%, 7.27%, and 7.17% respectively; Micron Technology declined by 0.76% but hit a record high intraday.

U.S. Stocks Have Not Entered a “Systemic Bear Market”

Song Qinghui, Renowned Economist

“Investors are gradually shifting from high-valuation growth stocks to defensive assets and cash instruments,” said economist Song Qinghui. He noted that rising geopolitical risks have caused U.S. stocks to decline for four weeks, prompting a shift from “emotional selling” to “rational pricing.” On one hand, conflicts in the Middle East have pushed up oil prices and inflation expectations, suppressing U.S. stock valuations; on the other hand, the U.S. economic fundamentals remain resilient, with employment and consumption providing support. He believes that U.S. stocks have not entered a “systemic bear market” and are currently in a phase of uncertainty pricing, with the core variable shifting from “growth expectations” to “risk premiums.”

Disruption of the “Petrodollar” Cycle by Conflict

According to Song Qinghui, the conflict involving the U.S., Israel, and Iran disrupts the “petrodollar” cycle, causing some capital that was flowing back into the U.S. markets to be intercepted or diverted into safe-haven assets, leading to marginal liquidity tightening. Additionally, rising oil prices and inflation expectations limit the Federal Reserve’s room to cut interest rates, making it difficult for financial conditions to ease significantly. Moreover, if the private credit market, worth about $1.8 trillion, experiences defaults or liquidity crises, it could amplify credit risks, creating a “liquidity contraction + credit contraction” dual pressure. He said, “While these shocks are unlikely to trigger a systemic crisis immediately, they will significantly increase market volatility and exert ongoing pressure on small and medium-sized enterprises and highly leveraged sectors.”

UBS Wealth Management CIO Office (CIO) warns that during periods of heightened geopolitical tension and market volatility, investors tend to “wait and see” or “exit,” but historical experience shows that maintaining a diversified portfolio and holding long-term is a better strategy. “If you had invested $100 in the S&P 500 in 1989 and held until the end of January 2026, your assets would have grown to $3,617.”

Market volatility is not necessarily frightening. UBS CIO team adds that since 1981, the S&P 500 has only experienced 10 years of annual declines, with an average maximum drawdown of about 14%. After sharp fluctuations, the stock market generally performs well. Additionally, since 1990, when the VIX (volatility index) reaches the “27.5 to 30” range, the average return over the following 12 months is about 11.5%. When VIX hits the “35 to 40” range, returns can reach as high as 22.1%, both outperforming the average 10% return in other periods.

“The market is beginning to worry whether this round of ‘AI-driven’ disruptions could trigger a new financial crisis in the U.S.,” observed Jin Qianjing, Chief Analyst of Asset Allocation at Shenwan Hongyuan Research. She noted that since the beginning of the year, under concerns about “AI disruption,” financial stocks that performed relatively well at the end of last year have started to decline. For example, credit card intermediaries like American Express declined the earliest and most sharply, and bank stocks have accelerated their weakness due to deteriorating credit conditions. Capital market stocks like Goldman Sachs and BlackRock are also falling faster amid fragile stock and credit bond markets, mainly due to concerns over future valuations.

Avoid Panic Buying Amid Unclear Geopolitical Risks

Foreign media quote Goldman Sachs’ One-Delta trading desk head Rich Privorotsky, saying that during geopolitical crises, prematurely betting on the bottom can be costly, and investors should avoid rushing to buy the dip. Referring to market patterns during the Russia-Ukraine conflict, “the day after ceasefire news is announced, it is often a good time to reduce positions rather than chase the rally.” Original title: U.S. Tech Stocks Weak, Defensive Sectors Become Safe Havens

(Source: Hong Kong Wen Wei Po A08: Headlines 2026/03/22)