Defensive Stock-Market Sectors Struggling to Provide Shelter

It's crucial to remember that stock-market sectors labeled as "defensive" may not always offer the protection investors seek.

Amidst the current market landscape, stocks in the consumer-staples and utilities sectors have faced considerable challenges. Investors have chosen to abandon low-volatility and dividend-paying shares in favor of higher yields and reduced risk found in U.S. Treasuries.

According to FactSet data, the S&P 500 Utilities XX:SP500.55 and Consumer Staples XX:SP500.30 sectors have been among the worst-performing sectors of the benchmark index this year, with declines of 16.1% and 7.8% respectively. In contrast, the S&P 500 Communication Services XX:SP500.50 and Information Technology XX:SP500.45 sector have experienced year-to-date advances of 37.3% and 33.7%.

However, Jonathan Krinsky, the managing director and chief market technician at BTIG, believes that this unconventional trend for stocks in traditional defensive sectors may soon reverse course. Some stocks are showing promising signs of breaking the previous downtrends.

Krinsky stated in a recent note, "We continue to think these stocks are sufficiently washed out and should certainly outperform in relative terms, with potential upside in absolute terms over the coming months."

As an example, Krinsky highlighted the Consumer Staples Select Sector SPDR Fund XLP, which tracks a market-cap-weighted index of consumer staples stocks selected from the S&P 500. He believes it has room to rise towards 71, indicating a nearly 4.5% increase from its current level of 67.97.

Krinsky added, "Many consumer staples charts are in long-term downtrends, but we think they have been sufficiently 'de-risked' and are starting to show evidence of breaking out of small bases or breaking those downtrends."

See: Consumer staples is the S&P 500’s second-worst performing sector in 2023. Why it still doesn’t look attractive despite cheap valuation.

Consumer Staples Stocks: A Defensive Investment in Uncertain Times

A Sector Under Pressure

Tech Stocks: A Crowded Market

The 200-Day Moving Average

Tech Stocks Slump

In conclusion, consumer staples stocks have historically provided stability to investors, but recent increases in U.S. Treasury yields have made them less attractive. On the other hand, the tech sector, particularly mega-cap tech stocks, faces its own challenges due to overcrowding and mixed earnings results. Both sectors exemplify the complexities and uncertainties of today's market environment.

Market Update

The stock market experienced mixed results today, with the S&P 500 Consumer Staples and Utilities sectors being the only sectors showing gains. The Consumer Staples sector saw a 0.3% increase, while the Utilities sector saw a slightly higher gain of 0.4%.

On the other hand, the tech-heavy S&P 500 Communication Services sector faced significant losses, falling by 5.9%. This drop puts the sector on track for its worst day in a year, according to Dow Jones Market Data.

It is crucial to note the contrasting performances of these sectors, emphasizing the volatility and unpredictability of the current market conditions. As investors navigate through these changes, it is essential to stay informed and adapt their strategies accordingly.