Low-beta stocks can slump more than expected when US markets sell off sharply

what happened

Barron's columnist Paul R. La Monica, citing research from Trivariate Research, argues that low-beta shares may not shield portfolios during a correction. Beta gauges how far a stock moves relative to the S&P 500. Names below 1 typically fall less than the index, but Adam Parker says their behavior shifts noticeably on heavy down sessions.

Parker highlights eight companies, including RTX, Charles Schwab, Union Pacific alongside its proposed merger partner Norfolk Southern, Danaher, Starbucks, Cintas and Intuit. Their average betas this year sit well below 1, yet they climb sharply on days when the index drops significantly. Starbucks' beta reportedly rose to 1.6 in sessions when the S&P 500 fell more than 0.75%, while Schwab's moved from 0.46 to 1.31.

Parker also notes that large institutional funds hold less of the "Magnificent Seven" and Broadcom, which he calls the "Great 8", than they typically should. If money rotates back into technology, those funds risk lagging the market. He identified Verizon, AT&T, Crown Holdings, Aon and Apple as names that held up well on days chip stocks slid.

why it matters

For investors, the takeaway is that a low beta reading in calm periods does not guarantee stability during a selloff. Heavy concentration in a few mega-cap tech names could also raise market volatility if capital flows back into them.

market impact

US stocks: defensive names may fall more than the S&P 500 on sharp down days

tags

instruments