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Investors Are Turning To This Corner Of The Market As Fear Takes Over

Investors Are Turning To This Corner Of The Market As Fear Takes Over

Wall Street is overweight this typically overlooked corner of the market as stocks continue to struggle.

Stocks fell sharply on Thursday following bad news from Apple (NASDAQ: AAPL) Wednesday evening and after weaker-than-anticipated manufacturing data was released.

Apple shares led the Dow down 527 points Thursday afternoon, while the S&P 500 sank 1.5% as the tech sector tumbled 3.7%.

A letter from Apple’s chief Tim Cook adjusted first-quarter revenue down to $84 billion—compared to the previous range of between $89 billion and $93 billion—and noted that the revenue shortfall can partly be attributed to an unforeseen slowdown in sales in China.

“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Cook wrote in a letter to investors about the revenue warning. “We believe the economic environment in China has been further impacted by rising trade tensions with the United States. As the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores and our channel partners in China declining as the quarter progressed.”

“This piles on to existing anxiety of a slowdown in global growth,” Jeff Kilburg, CEO of KKM Financial, said. “Apple can be used as a proxy to China’s growth.”

Today’s sharp tumble in the broader market lead by Apple follows a rough ride late last year where stocks fell as much as 20% culminating in a dramatic fall on Christmas Eve. The Nasdaq is currently in a bear market as it has recently slid more than 20% since its record high reached in August, while earlier this week the S&P 500 was a stone’s throw away from bear market territory.

As stocks have crashed and fear has picked up, one corner of the market has held up reasonably well over the past three months.

Defensive sectors like utilities and consumer staples, often overlooked in year-ahead investment recommendations from Wall Street’s finest each December, have emerged as the top picks in 2019. According to a Reuters analysis of the outlooks for this year from 10 major financial institutions, eight—including Barclays, Goldman Sachs, and Morgan Stanley—have “overweight” ratings on at least one defensive sector in 2019.

This is a big change from last year when only two of the banks analyzed favored any defensive sector.

“Utilities offering 6 to 8 percent total return with a lower level of risk might actually be a good place to be in an environment where volatility is rearing its head,” said Savita Subramanian, the head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch, during a recent call on the outlook for this year.

Typically, growth-oriented sectors like tech dominate new year investment recommendations. But as the bull market gives way to the bears, it isn’t surprising to see Wall Street banks telling investors to seek safety.

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