The Safe Haven Trade Isn't Feeling So Safe

The sectors investors have counted on to hold steady during geopolitical shocks are letting them down — and the reasons why reveal where the real opportunities may be.

Since the US-Israeli strikes on Iran, the market has moved in unexpected ways. Energy surged, as anyone with a history book might have guessed. But tech and software stocks also held up, while healthcare and consumer staples — the traditional safe-haven plays — sold off.

The Health Care Select Sector ETF $XLV ( ▼ 0.25% ) dropped roughly 5% and the Consumer Staples Select Sector ETF $XLP ( ▲ 0.58% ) lost about 6%, even as the Technology Select Sector ETF $XLK ( ▼ 0.75% ) lost less than 1%.

The breakdown may have two potential explanations.

First, investors had already rotated into defensive names before the war started, fleeing AI uncertainty and stretched tech valuations. By the time hostilities began, those sectors were crowded and no longer cheap. The war then gave tech a brief reprieve: the market's attention shifted from AI labor displacement fears to the conflict itself.

Second, both healthcare and consumer staples face structural headwinds that have nothing to do with oil prices. Managed-care companies face government pressure on spending and rising medical costs. Packaged food companies face store-brand competition, a K-shaped economy, and the emerging pressure of GLP-1 drugs on snacking habits.

That said, Citi $C ( ▲ 0.18% ) healthcare strategist Traver Davis argues investors should focus on reliable growth rather than chasing rock-bottom valuations.

Within healthcare, AbbVie $ABBV ( ▼ 2.53% ), Eli Lilly $LLY ( ▲ 0.8% ), and GE HealthCare $GEHC ( ▲ 0.63% ) screen well on price-to-earnings-growth metrics, per the Wall Street Journal.

In food, geography has mattered: the top performers in both sectors since the war began generate about 72% of their revenue in North America, per FactSet. Firms like Kraft Heinz $KHC ( ▲ 1.12% ) and Gilead Sciences $GILD ( ▲ 0.42% ) have held up better than globally exposed peers.

The sectors may yet reclaim their defensive reputation, particularly if AI uncertainty returns. For now, the investors best positioned are those using the underperformance to find the right names at the right price, not the ones who bought "safe" and stopped there.