Investors searching for safer areas in the US stock market are finding that traditional shelters that held up in last year's sell-off, such as consumer staples, utilities and health care, may be more problematic this time.
After rebounding sharply in January, the benchmark S&P 500 is wobbling again as investors worry the Federal Reserve will take interest rates higher than previously expected and keep them elevated for longer to thwart inflation.
Sell-offs can send investors looking for safety in so-called defensive names, which tend to have solid dividends and businesses that can weather rocky times.
"Last year, it was really easy to hide out in defensives," said Anthony Saglimbene, chief market strategist at Ameriprise Financial. “It worked really well last year. I think it’s going to be more complicated this year.”
In the initial weeks of 2023, the argument for defensives has been weakened by evidence the economy remains strong, as well as by competition from assets such as short-term US Treasuries and money markets offering their highest yields in years.
Sectors such as utilities are known as bond proxies because they typically provide stable earnings and safety in the way government bonds have done in the past.
When compounded by the fact some defensive stocks carry relatively expensive valuations, investors may avoid them even if the broader market sours.
Utilities, health care and consumer staples held firm in last year's punishing markets, posting relatively small declines of about 1 per cent to 3.5 per cent as the overall S&P 500 tumbled 19.4 per cent.
So far this year, those groups have been the three biggest decliners of the 11 S&P 500 sectors, with utilities down about 8 per cent, health care off 6 per cent and staples dropping 3 per cent as of Thursday's close.
The S&P 500 was last up 3.7 per cent in 2023, but pulled back since posting its best January performance since 2019.
Fears of a recession induced by the Fed's swift rate-hiking cycle hovered over markets last year and investors gravitated towards defensive areas, confident that spending on medicine, food and other necessities would continue despite economic turmoil.
Strong recent economic data, including stunning employment growth in January, has prompted investors to rethink expectations of an imminent downturn.
"If you look at the equity market, it’s telling you there’s no recession risk basically,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.
Defensives so far this year have been a "pain trade", he said.
The health of the US economy will become clearer with the release of the February jobs report next Friday, while investors will also be watching Congressional evidence next week from Fed chairman Jerome Powell.
High dividends helped defensive shares as a place to park money in turbulent times over the past decade, especially since traditionally safe assets yielded little.
That dynamic changed in the past year as soaring inflation and the Fed's rate hikes pushed up yields on cash and Treasuries.
The utilities sector has a dividend yield of 3.4 per cent, staples stands at 2.7 per cent, while health care offers 1.8 per cent, data from S&P Dow Jones Indices showed this week. By contrast, the six-month US Treasury note yields nearly 5.2 per cent.
Last year, it was really easy to hide out in defensives. It worked really well last year. I think it’s going to be more complicated this year
Anthony Saglimbene,
chief market strategist at Ameriprise Financial
“You can get a pretty attractive yield in the bond market now, which hasn’t been the case,” said Mark Hackett, chief of investment research at Nationwide.
Meanwhile, valuations in some cases are also relatively expensive. The utilities sector trades at 17.7 times forward earnings estimates, a nearly 20 per cent premium to its historic average, while staples trade at a price-equity of 20 times, about 11 per cent above its historic average, Refinitiv Datastream said.
Health care's price-equity ratio of 17 times is slightly below its historic average. However, the sector's financial prospects this year are relatively weak; S&P 500 healthcare earnings are expected to fall 8.3 per cent against a 1.7 per cent increase for the overall S&P 500, Refinitiv said.
To be sure, other factors could aid the prospects of defensives. For example, an increase in volatility in the bond market could improve the lure of defensive equities as a safe haven, Mr Hackett said.
Should concerns about recession increase sharply, as they did last year, defensives could outperform again on a relative basis, investors have said.
Ameriprise is overweight health care and staples, said Mr Saglimbene, who sees an uncertain macro environment.
But more broadly, the company is underweight equities and is more favourable towards fixed income.
“I think bonds are a better defensive position today than the traditional defensive sectors are,” he said.
Killing of Qassem Suleimani
The specs
Engine: 2.0-litre 4cyl turbo
Power: 261hp at 5,500rpm
Torque: 405Nm at 1,750-3,500rpm
Transmission: 9-speed auto
Fuel consumption: 6.9L/100km
On sale: Now
Price: From Dh117,059
MATCH INFO
Uefa Champions League semi-final, first leg
Bayern Munich v Real Madrid
When: April 25, 10.45pm kick-off (UAE)
Where: Allianz Arena, Munich
Live: BeIN Sports HD
Second leg: May 1, Santiago Bernabeu, Madrid
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If you go
The flights
Emirates flies from Dubai to Seattle from Dh5,555 return, including taxes. Portland is a 260 km drive from Seattle and Emirates offers codeshare flights to Portland with its partner Alaska Airlines.
The car
Hertz (www.hertz.ae) offers compact car rental from about $300 per week, including taxes. Emirates Skywards members can earn points on their car hire through Hertz.
Parks and accommodation
For information on Crater Lake National Park, visit www.nps.gov/crla/index.htm . Because of the altitude, large parts of the park are closed in winter due to snow. While the park’s summer season is May 22-October 31, typically, the full loop of the Rim Drive is only possible from late July until the end of October. Entry costs $25 per car for a day. For accommodation, see www.travelcraterlake.com. For information on Umpqua Hot Springs, see www.fs.usda.gov and https://soakoregon.com/umpqua-hot-springs/. For Bend, see https://www.visitbend.com/.
THE BIO:
Favourite holiday destination: Thailand. I go every year and I’m obsessed with the fitness camps there.
Favourite book: Born to Run by Christopher McDougall. It’s an amazing story about barefoot running.
Favourite film: A League of their Own. I used to love watching it in my granny’s house when I was seven.
Personal motto: Believe it and you can achieve it.
Volvo ES90 Specs
Engine: Electric single motor (96kW), twin motor (106kW) and twin motor performance (106kW)
Power: 333hp, 449hp, 680hp
Torque: 480Nm, 670Nm, 870Nm
On sale: Later in 2025 or early 2026, depending on region
Price: Exact regional pricing TBA
Killing of Qassem Suleimani
RACE CARD
6.30pm: Maiden (TB) Dh82,500 (Dirt) 1,200m
7.05pm: Maiden (TB) Dh82,500 (D) 1,900m
7.40pm: Handicap (TB) Dh102,500 (D) 2,000m
8.15pm: Conditions (TB) Dh120,000 (D) 1,600m
8.50pm: Handicap (TB) Dh95,000 (D) 1,600m
9.25pm: Handicap (TB) Dh87,500 (D) 1,400m
The alternatives
• Founded in 2014, Telr is a payment aggregator and gateway with an office in Silicon Oasis. It’s e-commerce entry plan costs Dh349 monthly (plus VAT). QR codes direct customers to an online payment page and merchants can generate payments through messaging apps.
• Business Bay’s Pallapay claims 40,000-plus active merchants who can invoice customers and receive payment by card. Fees range from 1.99 per cent plus Dh1 per transaction depending on payment method and location, such as online or via UAE mobile.
• Tap started in May 2013 in Kuwait, allowing Middle East businesses to bill, accept, receive and make payments online “easier, faster and smoother” via goSell and goCollect. It supports more than 10,000 merchants. Monthly fees range from US$65-100, plus card charges of 2.75-3.75 per cent and Dh1.2 per sale.
• 2checkout’s “all-in-one payment gateway and merchant account” accepts payments in 200-plus markets for 2.4-3.9 per cent, plus a Dh1.2-Dh1.8 currency conversion charge. The US provider processes online shop and mobile transactions and has 17,000-plus active digital commerce users.
• PayPal is probably the best-known online goods payment method - usually used for eBay purchases - but can be used to receive funds, providing everyone’s signed up. Costs from 2.9 per cent plus Dh1.2 per transaction.
The specs
Engine: 4.0-litre flat-six
Torque: 450Nm at 6,100rpm
Transmission: 7-speed PDK auto or 6-speed manual
Fuel economy, combined: 13.8L/100km
On sale: Available to order now
Company%20profile
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Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
The years Ramadan fell in May
Killing of Qassem Suleimani
Conflict, drought, famine
Estimates of the number of deaths caused by the famine range from 400,000 to 1 million, according to a document prepared for the UK House of Lords in 2024.
It has been claimed that the policies of the Ethiopian government, which took control after deposing Emperor Haile Selassie in a military-led revolution in 1974, contributed to the scale of the famine.
Dr Miriam Bradley, senior lecturer in humanitarian studies at the University of Manchester, has argued that, by the early 1980s, “several government policies combined to cause, rather than prevent, a famine which lasted from 1983 to 1985. Mengistu’s government imposed Stalinist-model agricultural policies involving forced collectivisation and villagisation [relocation of communities into planned villages].
The West became aware of the catastrophe through a series of BBC News reports by journalist Michael Buerk in October 1984 describing a “biblical famine” and containing graphic images of thousands of people, including children, facing starvation.
Band Aid
Bob Geldof, singer with the Irish rock group The Boomtown Rats, formed Band Aid in response to the horrific images shown in the news broadcasts.
With Midge Ure of the band Ultravox, he wrote the hit charity single Do They Know it’s Christmas in December 1984, featuring a string of high-profile musicians.
Following the single’s success, the idea to stage a rock concert evolved.
Live Aid was a series of simultaneous concerts that took place at Wembley Stadium in London, John F Kennedy Stadium in Philadelphia, the US, and at various other venues across the world.
The combined event was broadcast to an estimated worldwide audience of 1.5 billion.
More on Quran memorisation:
The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
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