As Stock Market Hits All-Time Highs, Investors Bailing Out of Defensive Strategies

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With news that a phase-one trade deal with China is closer, with tariffs being rolled back, U.S. equities hit all-time highs. The major equity indexes are now less than 1% under historic milestones of 28,000 on the Dow Jones industrial average and 3,100 on the S&P 500. While investors have jumped into defensive stocks and defensive strategies for too long to easily recount, those defensive strategies are far from attractive if a trade deal with China is going to occur. The actual odds of a recession were far lower than those endless recession calls by the media this summer, but if things go the way they appear to be heading, then investors will want to have exposure to more aggressive strategies.

24/7 Wall St. has tracked the so-called defensive investment strategies for years, and many of these still include sectors that are equities. Our observation was that many of these were simply at sky-high valuations even at the end of August.

The Utilities Select Sector SPDR Fund (NYSEARCA: XLU), which includes the top utilities as defensive investments, was last seen down 1.4% at $61.97 on Thursday. That’s down from a high of $65.11 that was just seen on September 26.

NextEra Energy Inc. (NYSE: NEE) is the largest U.S. utility by market cap, and it is the only one to have ever reached a $100 billion market cap. It was down 2.5% at $221.70, and its high of $239.89 was just seen on October 22.

American Water Works Co. Inc. (NYSE: AWK), which rises on many bad days for the stock market as a whole, was down 2.5% at $118.51. That’s down from a high of $129.89, and its price-to-earnings (P/E) comparison to the market as a whole remains a difficult sell to any new investors.

Procter & Gamble Co. (NYSE: PG), the king of consumer products, was trading down 0.4% at $119.79, down from a high of $125.77 that was just seen on October 24.

McDonald’s Corp. (NYSE: MCD) had been defensive due to its ability to feed a family for very little, but it had already been selling off due to its own troubles of late. Still, it was down another 0.35% at $193.50 on Thursday. This was a $220 stock as recently as September 9.

American Tower Corp. (NYSE: AMT) is defensive because its business is likely to keep all the cell-tower traffic whether the economy is up or down. It traded down 1.77% at $204.29, and that is down from an all-time high of $242.00 from September 5.

Coca-Cola Co. (NYSE: KO) was down 1.1% at $52.21, from a recent high of $55.92. PepsiCo Inc. (NYSE: PEP) traded down 0.75% at $133.43, after a recent high of $140.45.

Altria Group Inc. (NYSE: MO) has had its share of problems recently, without considering the market, but its shares were down 0.4% at $45.72.

There is also the Invesco Defensive Equity ETF (NYSEARCA: DEF), which targets defensive investing but still has some cyclical names in its top holdings. Its shares were up just 0.1% at $54.53, in a 52-week trading range of $41.45 to $54.76.

Gold was taking it on the chin, with stocks signaling highs and with bond yields rising. Gold’s price was down almost 1.5% at $1,469.70, after peaking at about $1,500 in September. The SPDR Gold Shares (NYSEARCA: GLD), the largest of all exchange-traded gold products by far, was last seen trading down 1.7% at $138.00, compared to a recent high of $146.82.

Exchange-traded products tracking bonds were also soft. The Vanguard Total Bond Market Index Fund ETF Shares (NYSEARCA: BND) was down 0.54% at $83.45, versus a recent high of $85.30. The iShares National Muni Bond ETF (NYSEARCA: MUB) traded down 0.34% at $113.30, compared to a recent high of $115.42, and it aims to track the tax-free municipal bonds.


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