There's been a dramatic shift in investor behavior recently, vaulting defensive sectors such as telecom and consumer staples into market leaders, while relegating tech stocks to laggard status, The Wall Street Journal reports. This is happening even as several major stock indexes have risen to new record highs. "There's been a natural inclination towards more defensive sectors," says Michael Arone, managing director and chief investment strategist at State Street Global Advisors. As investors react to new market highs by anticipating a potential selloff, they have propelled the shares of "safety stocks" such as The Coca-Cola Co. (KO), Walgreens Boots Alliance Inc. (WBA). Constellation Brands Inc. (STZ), Philip Morris International Inc. (PM), AT&T Inc. (T), The Hershey Co. (HSY) and Altria Group Inc. (MO).
7 Defensive Stocks On The Rebound
|Stock||Gain Since 8/31|
|S&P 500 Index (SPX)||1.2%|
Source: Yahoo Finance, based on adjusted close data through the opne on Sept. 21.
Meanwhile, the S&P 500 Information Technology Index is down by 0.9% for the month-to-date, per S&P Dow Jones Indices. Its biggest components are the mega cap FAAMG stocks, which also are the a largest components of the full S&P 500.
Stock Investors Are Cautious About The Market
|Cash holdings the highest in 18 months|
|Only 32% of individual investors see stocks rising|
Shift in Investor Sentiment
Defensive sectors such as telecom and consumer staples are generally considered to be safe havens for investors, partly given their track records of steadily rising dividends, the Journal notes. By contrast, these stocks tend to be laggards during big stock market rallies because they typically offer lower potential for rapid earnings growth and share price gains than other sectors, notably technology. Right now, both institutional and individual investors apparently are recognizing that the market can't head upward indefinitely, and thus are rotating towards safe havens, including cash.
Cash is King
The latest release of the monthly Global Fund Manager Survey from Bank of America Merrill Lynch reveals that respondents have 5.1% of their portfolios in cash, the largest percentage in 18 months, the Journal indicates. Meanwhile, a poll dated Sept. 12 by the American Association of Individual Investors indicates that only 32% of respondents believe that stocks will be higher in six months, down by 10 percentage points from the prior week, and below the historical average of 39%, also per the WSJ. Looking ahead, "The wild card is the tariffs and if they end up actually changing the narrative and pushing the U.S. economy lower,” as Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Co., told the Journal.
The second half of 2018 should be a period of improved performance for telecom companies, per a research report from Oppenheimer summarized by Barron's. In particular, Oppenheimer projects rising average revenue per wireless customer, partly due to a move away from price-cutting competition and towards offering new features and premium unlimited usage plans that increase customer charges. Oppenheimer sees a trend towards bundling over-the-top TV and video services (that is, delivered through the internet, rather than though cable TV infrastructure) into unlimited data plans, and anticipates growth in wired internet service.
"The convergence of wireless and wireline is happening longer term and will lead to major consolidation," as Timothy Horan, an analyst with Oppenheimer, wrote in recent report, per Barron's. AT&T is among his top large cap picks in telecom, based partly on a hefty dividend yield of 6%.
AT&T is a leading provider of both wireless and wireline telephone and internet service, as well as a major player in cable TV. Its position in cable has been enhanced by its acquisition of Time Warner, which also made AT&T a major content provider. AT&T's customer base spans consumers, businesses and governments, and it also is a leading wholesaler of network capacity to other telecom companies. Its market cap is over $247 billion, and the consensus revenue estimate for 2019 is $185 billion, which includes a full year of results contributed by Time Warner, per Yahoo Finance.