Global stock investors may be excited with gains but the rally is looking like a run for defensive plays rather than a risk-on roar.

A Goldman Sachs Group Inc. index of defensive stocks including megacap tech and healthcare names has climbed to more than an 18-month high relative to the MSCI AC World Index, as fears of a global recession outweigh concern over sky-high inflation. The gauge has jumped over 4% this week, double the rise in the global stocks benchmark, itself on track for its first weekly gain in four.

Investors are beginning to consider the consequences of a Federal Reserve that seems willing to hike the world's largest economy into recession to defeat inflation. Chair Jerome Powell has called his commitment to curbing price rises "unconditional," giving a boost to havens like Treasuries this week and providing a fresh impetus for defensives to outperform.

"The heightened volatility in the markets has forced investors to seek stability," said Manish Bhargava, a fund manager at Straits Investment Management in Singapore. Sectors such as utilities and healthcare "that have the highest prospective Sharpe ratios could continue to trade well," he added referring to a measure of risk relative to returns.

The fall in bond yields has been particularly helpful to defensive growth stocks, which had been under pressure from the rise in interest rates undermining valuations.

In Asia trading Friday, stocks with defensive factors such as growth and profitability outperformed riskier or economically sensitive ones like leverage and value. That followed a strong session for U.S. defensive stocks Thursday, a gauge of which jumped 2% while its cyclical peer closed lower.

A stronger positioning in defensives amid growing fear of a slowdown also suggests markets may struggle in the near term, especially cyclical stocks that tend to benefit from a strengthening economy. Forward earnings for global stocks are just a fraction off their recent highs, despite recession concerns.

Already, equity funds are seeing their biggest outflows in nine weeks. About $16.8 billion exited in the week through June 22, with U.S. stocks seeing their first outflow in seven weeks at $17.4 billion, Bank of America Corp. said, citing EPFR Global data.

"Investors are shifting their focus from rate risks to EPS risks. That may take some pressure off growth stocks, but remains troublesome for cyclicals," Citigroup Inc. strategists including Robert Buckland wrote in a note on Thursday. "Defensive Value looks desirable."

Cormac Mullen and Abhishek Vishnoi report for Bloomberg News.

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