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Dow points to 6th day of gains as Nasdaq falls
Stocks rebounded from a difficult April, led by some of the most under-appreciated sectors over the past year that typically outperform when the economy is in recession.
This was again the case on Wednesday, with Utilities (XLU) rising about 0.9% compared to the S&P 500 (^GSPC) almost flat return.
Since April 16, when the S&P 500 hit its recent low, utilities have led the climb, rising nearly 12%, accounting for all of the sector’s year-to-date gains. Consumer Staples (XLP) rose nearly 5% over the same period.
While these stocks are often tagged with the phrase “defensive,” referring to their outperformance amid subpar economic performance, Wall Street stock strategists told Yahoo Finance that a recovery trade is the most likely for the increase. and not weaker-than-expected recent economic data.
Given that both sectors were among the worst performers in the S&P 500 last year, Truist co-CIO Keith Lerner argued that there is one aspect of the change that is simply the rotation of investors into an area that has not yet participated much in the recent market recovery. .
Utilities entered March at the biggest discount to the S&P 500 from a valuation standpoint (using a forward price/earnings ratio) since 2009, according to Lerner. However, consumer staples have underperformed the S&P 500 by nearly 30% over the past year. This presented a potential buying opportunity in both traditionally “defensive” sectors.
“With markets as high as they have been since October, people get nervous,” Lerner told Yahoo Finance. “They want to move to something a little more defensive, do some profit taking… It’s also just saying, ‘Hey, what didn’t work and what could have an opportunity to recover or hold up better if the market is right?’ ‘”
Charles Schwab senior investment strategist Kevin Gordon has achieved it.
“Things got so pessimistic for [Utilities] and you know, in turn and relatedly, make it more attractive to those looking for deeper value,” Gordon told Yahoo Finance.