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Money flows into U.S. defensive stocks


On the New York Stock Exchange, “defensive stocks” like utilities and health care are gaining ground. Exchange-traded funds (ETFs) linked to defensive stocks are also attracting large investment volumes.

new york stocks exchange

The major indices on the New York Stock Exchange are hitting new highs each day, but the current investment trend is towards buying defensive stocks, as concerns about an economic slowdown and lower interest rates grow due to the spread of the Covid-19 delta shift are expected.

On June 30, utilities and healthcare outperformed the S&P 500. According to the Wall Street Journal (WSJ), utilities and health care sectors had the best performance in the third quarter of this year (July-September). The healthcare sector grew 7.8% and 6.6%, respectively. Over the same period, the S&P 500 gained 4.9%.

As measured by share price, shares of Nextera Energy, a renewable energy company, and Danaher, a medical company, rose by 14% and 19%, respectively, posting the largest gains in related sectors.

Investor sentiment is waning as concerns about slowing consumer spending and the recovery in employment indicators are limiting economic growth. Goldman Sachs recently lowered its U.S. economic growth forecast for the third quarter of this year to 5.5 percent from 9 percent. Likewise, the Citi Surprise Index, which measures the variation between expected and actual economic data, has been below the benchmark (0) since mid-July.

ETFs that invest in defensive equity.
Therefore, investors are pouring money into economic defensive equity ETFs as well. Net inflows into U.S. defense ETFs totaled $5 billion in July. A total of $1 billion has been invested in health care and utilities ETFs since the beginning of the month.

There was a net outflow of $3.6 billion from defense ETFs in the first half of this year, but this turned around in July.

Experts recommended investing in the SPDR Utility ETF (XLU), which invests in utilities and consumer staples, and the Consumer Staples Select Sector SPDR ETF (XLP), which invests in consumer staples. Low-volatility ETFs and minimum-volatility ETFs, which invest in low-volatility stocks, are also gaining in popularity.

Invesco’s S&P 500 Low Volatility ETF (SPLV) tracks the S&P 500 Low Volatility Index, and Invesco High Dividend Low Volatility ETF (SPHD) tracks S&P 500 High Dividend low volatility stocks.

BlackRock’s “iShares MSCI USA Minimum Volatility ETF (USMV)” is considered the least volatile ETF.

David Jones, a researcher at Bank of America, said, “Meanwhile, bond yields have been so low that there is nowhere to go but stocks, but in the second half of the year, stock yields are likely to fall and volatility is high, so investors are advised to take a defensive action.”

For MetaNews.


Jonathan Hobbs

Jonathan Hobbs is an Australian investor and author that trades on a variety of asset classes, including currencies, equities, and commodities. Jonathan’s experience as a macro trader leverages his unique writing style to combine important elements, such as technical analysis and news. The other elements that he brings into his unique writing styles are foundation analysis aimed at rational equilibrium values, evaluating the sizes and motivations of buyers and sellers, as well as identifying the needs of the buyers and sellers in the individual markets. Jonathan is committed to quality writing for new traders as well as veterans.

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