The latest leg up in the stock market has been helped along by so-called safety stocks, signaling a shift among investors seeking certainty as trade tensions and central-bank policy push and pull markets. Recently, more companies in S&P 500 sectors perceived as safer—such as utilities, consumer-staples and real-estate—have been climbing above closely watched trend lines that some investors use to track momentum. At least 69% of the companies in each of those groups are trading above their 50-day moving average. Those three sectors are also trading at least 2.3% higher since mid-May while the S&P 500 is flat. The shift to safer stocks is a reversal from earlier this year, when cyclical sectors tied to the health of the economy propelled major U.S. stock indexes to fresh records. Trade tensions rattled investors last month, with all three major indexes posting their worst May since 2010. But stocks have rebounded recently, and the Dow Jones Industrial Average and S&P 500 both sit within 3.1% of their records. Signs have emerged that the Federal Reserve might cut interest rates to boost the U.S. economy, and Friday’s weaker-than-expected employment report for May added to growing expectations of a rate cut. The move into safer stocks “really demonstrates how risk-averse investors have become in recent months,” said Eric Marshall, portfolio manager at Hodges Capital Management. “A lot of it has to do with what effect the tariffs may have on the economy and uncertainty over how the Fed will or will not respond to that.” As bond yields have fallen, safety stocks with steady dividend payouts have become more attractive. Those types of companies are also considered some of the most reliable and least volatile in the stock market. The yield on the benchmark 10-year U.S. Treasury note settled at 2.129% Wednesday, well below November’s seven-year high of 3.232% as the Fed has scaled back its rate projections amid fears over slowing global growth. Yields fall as bond prices rise. The 10-year yield is below the 3.2% dividend yield offered by utilities stocks in the S&P 500, which is among the highest in the index and exceeds the broader S&P 500’s 1.9% yield. The Fed’s dovish tilt this year has also boosted real-estate shares that had been pressured by the threat of higher rates. Real-estate stocks in the S&P 500 have advanced 20% in 2019, outpacing the S&P 500’s 15% rise, after the group slumped 5.6% last year. The sector is the second-best performing group behind technology, which has climbed 23% in 2019. Are you sccoping up shares of defensive stocks? If not, what are you buying? Let the author know your thoughts at jessica.menton@wsj.com. Emailed comments may be edited before publication in future newsletters, and please make sure to include your name and location. |