Rotating to Defense: Strategy for the Diverging Market

Fresh news and strategies for traders. SPY Trader episode #1419. The market faces extreme divergence, with strong corporate fundamentals clashing with macro headwinds and tech valuation fears, sparking a sharp riskoff rotation. We advise investors to adopt a Cautiously Optimistic stance: hedge concentrated growth (shifting from QQQ to VTI), maintain core AI infrastructure exposure (NVDA, MSFT), and add defensives (XLV) and longterm rate sensitivity (TLT) to navigate the current volatility.

Episode Transcript

(00:00):
Hello and welcome to Spy Trader , the podcast that helps you navigate the high seas of the stock market .
I'm your host , Barry the Bull , and I'm checking in early from the West Coast .
It's 5 am on Friday , November 7th , 2025 , Pacific time , and we are kicking off the last trading day of the week with a market grappling with big decisions and higher volatility .

(00:23):
We’ve seen a recent , sharp correction dominated by fears over skyhigh valuations , particularly in the tech sector .
On a recent day , the S&P 500 tumbled 1.1% , but the real drama was in the Nasdaq , which dropped a full 1.9% , driven largely by concerns over the socalled AI bubble .

(00:45):
This market pullback , however , is running headlong into strong corporate fundamentals .
Around 80 to 82% of S&P 500 companies have beaten Q3 analyst forecasts , proving the underlying corporate environment is robust .
The main macroeconomic headwinds remain a cautious Federal Reserve , which recently cut rates but tempered expectations for an immediate December cut , and a significant labor market slowdown .

(01:13):
October layoffs hit levels not seen since 2003 for that month , with technology companies leading the cuts .
The ongoing , longestonrecord government shutdown is also forcing investors to operate in a ' fog , ' increasing general market nervousness .
This environment screams divergence .
It’s a classic riskoff environment , with investors rotating out of aggressive growth and into defensives .

(01:39):
Health Care , tracked by the XLV ETF , has shown recent outperformance as demand for those services remains inelastic .
The tech selloff underscores investor sensitivity to capital spending and valuations .
While core AI players like NVIDIA received multiple analyst price target increases , with one firm hitting 350 based on expectations for GPU shipments to double , the wider sector is nervous .

(02:09):
We saw companies like Palantir tumble over 9% and Meta shares face significant selling pressure on news of large , debtfueled AI investment plans .
The Fed’s caution means highgrowth , highvaluation stocks like those in QQQ are being discounted more heavily .
Given the strong underlying corporate fundamentals clashing with technical and macrodriven skepticism , our investment posture right now is Cautiously Optimistic with a focus on quality and diversification .

(02:40):
First , if you are currently heavily concentrated in highflying growth , consider hedging that exposure .
We recommend shifting some funds from a concentrated fund like QQQ into the Vanguard Total Stock Market ETF , VTI .
VTI offers exposure to over 3,500 companies , providing better insulation during narrow , techspecific corrections .

(03:06):
Second , stick with the core infrastructure plays in AI .
Avoid pure speculation .
Despite shortterm volatility , companies like NVIDIA ( NVDA ) in chips and Microsoft ( MSFT ) in cloud services remain leaders , providing defensible revenue streams .
Third , add some defense and rate sensitivity .

(03:27):
Look at the Health Care Select Sector SPDR Fund ( XLV ) , which has shown recent resilience , or for longterm rate exposure , consider the iShares 20 Year Treasury Bond ETF ( TLT ) .
If the economy slows further and forces more aggressive rate cuts in 2026 , TLT stands to gain the most .

(03:48):
That’s all for today’s Spy Trader .
Trade smart , not just hard !