{"id":8352,"date":"2019-11-25T15:20:36","date_gmt":"2019-11-25T15:20:36","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8352"},"modified":"2022-02-26T13:07:06","modified_gmt":"2022-02-26T13:07:06","slug":"investors-shifting-away-from-defensive-stocks","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/investors-shifting-away-from-defensive-stocks\/","title":{"rendered":"Investors Shifting Away from Defensive Stocks"},"content":{"rendered":"\n<p>A few weeks ago, I wrote in a <em>Mitch on the Markets <\/em>column that I\u2019d been observing a notable\nrotation in the equity markets. I saw a significant shift away from cyclical\nsectors and towards defensive sectors. I noted in the column that in Q3 2019, the\ntraditionally defensive Utilities and Consumer Staples sectors had been\noutperforming Information Technology by a ratio of at least 2-to-1, and that there\nwere nearly 2.5 times the amount of put options on the S&amp;P 500 Index as\nthere were call options. <\/p>\n\n\n\n<p>It was clearly a signal, in my view, that investors were worried\nabout economic and equity market performance going forward, and that they were\nhedging against downside risk as a result. <\/p>\n\n\n\n<p>My conclusion in that column was that investors were\noverpaying for this defensive posture. I believed better-than-expected economic\nnews could drive mean reversion in the equity markets, with cyclicals\noutperforming. That\u2019s what we\u2019ve seen so far in Q4.<\/p>\n\n\n\n<p>&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_11_25&amp;content=stock_market_outlook_report\">Keep Your Eye on the Long-Term with Our Just-Released Report!<\/a><\/strong><\/p>\n\n\n\n<p>I suggest avoiding the urge to get caught up in day-to-day\nmovements, and instead focus on economic data releases, earnings reports, and\nother economic factors! To help you do this, I am offering all readers a first\nlook into our just-released December\n2019 Stock Market Outlook report.<br>\n<br>\nThis 22-page report contains some of our key forecasts to consider in 2019:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Stock market returns expectations for 2019\nand 2020? <\/em><\/li><li><em>Forecast for the S&amp;P<\/em><\/li><li><em>What of slowing foreign growth?<\/em><\/li><li><em>Can the U.S. stock market rally stick?<\/em><\/li><li><em>Which sectors are hot and which are not?<\/em><\/li><li><em>What industries within those sectors most\nmerit your attention?<\/em><\/li><li><em>Odds of recession<\/em><\/li><li><em>And much more.<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about\nthese forecasts, click on the link below to get your free report today! <\/p>\n\n\n\n<p><br> <strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_11_25&amp;content=stock_market_outlook_report\">IT&#8217;S FREE. Download the Just-Released December 2019 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_11_25&amp;content=stock_market_outlook_report\">1<\/a><\/sup><\/strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_11_25&amp;content=stock_market_outlook_report\">\u00a0<\/a><br> <br> &#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;<\/p>\n\n\n\n<p>Over the last month, cyclical sectors like Financials,\nIndustrials, Information Technology, and Materials have outperformed while non-cyclical,\ndefensive sectors like Utilities and Consumer Staples have sagged. Here is a\nsnapshot look at performance over the last month2 for these sectors:<sup>3<\/sup><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Financials: +8.79%<\/li><li>Industrials: +8.41%<\/li><li>Information Technology: +7.36%<\/li><li>Materials: +7.33%<\/li><li><strong>S&amp;P\n500: +5.23%<\/strong><\/li><li>Consumer Staples: -0.15%<\/li><li>Utilities: -4.25%<\/li><\/ul>\n\n\n\n<p>It\u2019s clear to see that the sectors generally labeled as\ndefensive have gotten beaten up during the current market rally. In my view,\nthis divergence of performance marks a clear pendulum swing back into riskier\ncategories, which one might classify as the market environment being \u201crisk-on\u201d\nagain. <\/p>\n\n\n\n<p>There is other evidence to support this shift in investor\nsentiment. Two exchange-traded funds (ETFs) that brand themselves as \u201clow\nvolatility\u201d \u2013 the Invesco S&amp;P 500 Low Volatility ETF and iShares Edge MSCI\nMin Vol USA ETF \u2013 have experienced large outflows in November <em>and <\/em>have underperformed the S&amp;P 500\nthis month. Investors seem to be fleeing the defensive, worried-about-recession\ntrades in favor of higher risk\/reward categories like cyclicals.<sup>4<\/sup><\/p>\n\n\n\n<p>The bond markets are also reflecting this potential \u201crisk-on\u201d\nshift. Over the past couple of months, the 10-year Treasury yield has rebounded\nto its highest level since July, which is a signal that investors have been\nselling bonds. As you can see in the chart below, the uptick in bond yields has\ncorresponded fairly tightly with the Q4 market rally, which I\u2019d take as further\nevidence of a rotation. <\/p>\n\n\n\n<p><strong>10-Year Treasury Bond\nYields Have Risen Over the Past Couple of Months<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/11.25_MOTM_chart.png\" alt=\"\" class=\"wp-image-8353\"\/><\/figure>\n\n\n\n<p><strong><em>Source: Federal Reserve Bank of St. Louis<sup>5<\/sup><\/em><\/strong><\/p>\n\n\n\n<p>To be fair, these are all short-term moves. As a long-term\noriented investor, I do not put a whole lot of stock in month-to-month or even\nquarter-to-quarter changes in prices across sectors and asset classes. But it\nis interesting to note that the prevailing recession sentiment (and the\ncorresponding \u2018wall of worry\u2019) has seemingly been replaced with renewed\noptimism for stocks and growth in the US economy. <\/p>\n\n\n\n<p>So, what\u2019s changed? In my view, pretty\nmuch nothing at all! The media narrative on trade has changed slightly, as\nhopes of \u201cPhase 1\u201d of a trade deal between the U.S. and China may include the\nreduction or elimination of some tariffs between the world\u2019s two largest\neconomies. Time will tell.<\/p>\n\n\n\n<p>The other, less frequently cited reason\nfor renewed optimism and support for stock prices comes in the form of\nbetter-than-expected earnings results from Q3, in my view. To me, this offers a\nbetter explanation for why stocks have performed well recently. Total earnings (or aggregate net income)\nfor the 469 S&amp;P 500 companies that have reported results as of November 20 are down -1.2%\n(year-over-year) on +4.3% higher revenues, but a stout 72.7% of them beat EPS\nestimates and 57.6% beat revenue estimates.<sup>6<\/sup> The\ntakeaway: American corporations have not fared as badly as many expected.<\/p>\n\n\n\n<p><strong>Bottom\nLine for Investors<\/strong><\/p>\n\n\n\n<p>Much of this week\u2019s column has focused\non short-term price movements in the equity markets. Regular readers of my\ncolumn know that I, and by extension Zacks Investment Management, place far\ngreater importance on longer-term trends and the value of investing in stocks\nfor 10, 20, and 30 years \u2013 not 10, 20, and 30 days or months. <\/p>\n\n\n\n<p>Short-term shifts in investor sentiment\nare interesting to observe, but I hope that readers can see the folly in attempting\nto toggle back and forth from \u201crisk-on\u201d &nbsp;to \u201crisk-off.\u201d Doing so increases\nthe risk of mistiming the markets, and in my view, will almost certainly\ncompromise one\u2019s ability to generate attractive long-term returns. <\/p>\n\n\n\n<p><strong>My recommendation: <\/strong>Avoid the urge to get caught up in day-to-day movements, and instead focus on economic data releases, earnings reports, and other economic factors! To help you do this, I invite you to <strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_11_25&amp;content=stock_market_outlook_report\">download our Just-Released December 2019 Stock Market Outlook Report.<\/a><\/strong><br> <br> This Special Report is packed with newly revised predictions for the remainder of 2019 and 2020 that can help you base your next investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:\u00a0<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Stock market returns expectations for 2019\nand 2020? <\/em><\/li><li><em>Forecast for the S&amp;P<\/em><\/li><li><em>What of slowing foreign growth?<\/em><\/li><li><em>Can the U.S. stock market rally stick?<\/em><\/li><li><em>Which sectors are hot and which are not?<\/em><\/li><li><em>What industries within those sectors most\nmerit your attention?<\/em><\/li><li><em>Odds of recession<\/em><\/li><li><em>And much more.<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<sup>7<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Trade deal hopes and better-than-expected earnings may explain renewed \u201crisk-on\u201d sentiment <\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-8352","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8352","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8352"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8352\/revisions"}],"predecessor-version":[{"id":10677,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8352\/revisions\/10677"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8352"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8352"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8352"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}