Reference overlayed resources https://github.com/carvel-dev/ytt/issues/933

deployments.yaml

---
apiVersion: apps/v1
kind: Deployment
metadata:
  name: app1
  labels:
    app: app1
spec:
  replicas: 1
  selector:
    matchLabels:
      app: app1
  template:
    metadata:
      labels:
        app: capp1
    spec:
      containers:
      - image: nginx:alpine
        name: nginx

---
apiVersion: apps/v1
kind: Deployment
metadata:
  name: app2
  labels:
    app: app1
spec:
  replicas: 1
  selector:
    matchLabels:
      app: app2
  template:
    metadata:
      labels:
        app: app2
    spec:
      containers:
      - image: nginx:alpine
        name: nginx

overlays.yaml

#@ load("@ytt:overlay", "overlay")

#@ def with_labels(left_metadata, right_metadata):
#@   """
#@   Returns the lhs metadata with additional labels.
#@   """
#@   metadata = dict(left_metadata)
#@   labels = dict(metadata["labels"])
#@   labels["metadata.name"] = metadata["name"]
#@   metadata["labels"] = labels
#@   return metadata
#@ end

#@overlay/match expects="0+", by=overlay.subset({"kind": "Deployment"})
---
#@overlay/replace via=with_labels
metadata: