Suddenly, what’s old is new again. There’s a popular trade sweeping Wall Street that’s offering an old world solution to the threat of AI disruption: “HALO,” or “Heavy Assets, Low Obsolescence.” What that means is that more investors are betting that companies with hefty real assets such as grids, pipelines and heavy machinery are the ones least likely to be replaced by artificial intelligence. “I’ve come up with a term for the types of stocks that have run away with the stock market’s gains this year. They are the HALO part of the market,” investor Josh Brown wrote for CNBC earlier this month. “They have risks, but not AI risks. In fact, in many cases, AI will probably enable them to become even more profitable than they are today,” Brown continued. “So they actually go up as the LLMs advance.” That idea is central to why many real world sectors are outperforming this year, even as the overall market and especially tech stocks have floundered. The two top-performing sectors are energy and materials, which are surging more than 23% and 15%, respectively. The third best-performing sector, consumer staples , has rallied more than 14%. Compare that to the market cap weighted S & P 500, which is just slightly higher year to date. Or even more worryingly, tech stocks. Only two of the “Magnificent Seven” names are higher this year, failing to rally even off the back of Nvidia’s earnings beat , as investors worry their massive capex spending may not be justified. Software stocks are lost in a bloodbath amid fears that advances coming out of Anthropic around agentic AI will cripple an industry reliant on scalability and high fees. The iShares Expanded Tech-Software Sector ETF (IGV) is down more than 22% this year, and more than 30% off its recent high. And financials and commercial real estate are two other areas that have been hurt. The term has been quickly adopted on other parts of the Street. A note from the Barclays’ trading desk last week said “HALO” names have benefited from the “violent” move into the more defensive parts of the market. Goldman Sachs’ Guillaume Jaisson said that markets have been rewarding HALO, saying a basket of its capital intensive names have outperformed capital light stocks by 35% since 2025. A note from the sales desk at Bank of America said HALO is a way for investors to avoid near-term volatility by taking advantage of a secular rotation into old economy cyclicals. To be sure, there are many who worry that the panic selling that has defined the market as of late has been indiscriminate. As an example, some expect software stocks could be nearing a bottom, with some even emerging as winners despite the cascade of advances out of Anthropic. In fact, tech is now about as cheap as consumer staples, suggesting the growth names are not nearly as overvalued as investors feared. “The test for investors going forward will be whether [HALO] remains the correct investment as the AI narrative once again evolves, especially as the capex hump of hyperscalers is passed,” read a note last week from the Barclays’ trading desk. Yet the HALO crowd have reason to believe the trade is sustainable. Outside of a desire to escape the market’s next AI victim, many HALO stocks have room to run after years of underperformance, can benefit from easier monetary policy and fiscal stimulus, and could even realize improved margins from AI. Here are some of the HALO beneficiaries that Bank of America’s sales desk identified. Apple is just one of two Mag Seven companies that has eked out a gain this year, with the other advancer being Nvidia. The iPhone maker underperformed its cohort last year, yet investors are hopeful that the tech giant’s foray into AI tied to its devices will revive the stock. Chevron is another example. The oil and gas giant, which is up more than 20% this year, was recently upgraded to buy at Melius Research because of an expected pickup in exploration.
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Wednesday, August 12
