NEW YORK--after sailing through its best first quarter since 1998, the stock market begins to lose some momentum. The Standard and Poor 500 index, stock, point the broad market benchmark, is only 1% this quarter after having jumped 5.4% in the first three months of the year, largely because of conflicting data on the health of the economy.
A group - defensive stocks - is doing very well. Utilities, health care and consumers are all considered as a good defense against a slowdown because they tend to have stable profits regardless what happens in the general economy. The items they sell are not those people stop buying when budgets are tight. And for the past six weeks, investors have been putting money in stocks of companies such as Aetna or Kraft Foods that meet the needs of all the days, such as health insurance or a coffee.
Each of the groups of the defensive industry has won more than 5% this quarter. Health care - the best of the three - is now up to 14.2% for the year, after a delay sectors such as energy and industry in the first quarter. In addition, the number of shares exchanging hands in defensive industries also increases. Higher volume often means that a stock on the rise will continue to increase - or that a stock decline will keep falling - because it reflects the interest of investors in a stock. Select the daily trading volume of American Consumer Staples ETF, for example, is double the rate that it was in January.
During this time, industrialists, a group that investors buy more when they expect an economic pickup lead to new buildings or machinery, are flat for the quarter. Energy companies are down 6.9% this quarter because several reports indicated in the demand for oil is falling gas approaching $ 4 per gallon.
"People become more conservative in their Outlook and their spending, as oil prices have increased," said Quincy Krosby, Chief Strategist at Prudential Financial. Investors began to worry that energy prices will be undermining consumer and business spending, she said.
There was good news on the economy recently. More companies in the S & P 500 are beating estimates sales analyst since this quarter than at any other time, that the recession is over almost two years ago. Firms are also adding jobs at the fastest pace in five years, with 700 000 additional jobs in the last three months.
Despite this, Andrew Goldberg, a strategist at J.P. Morgan funds market, believes defensive stocks will continue to until it is clear that the price of oil will not be a drag on overall growth.
"If the Americans spend more money on gasoline, it means less money will be spent on flat screen televisions and the holidays," said Goldberg. "To display this economic recovery as a patient in the I.C.U.". "We are off the coast of the respiratory system and on the right track for a full recovery, but the oil price can cause a relapse".
Investors who think that the rate of growth of the economy will not lead to higher profits for companies are attracted by the defensive companies for two reasons. These companies - in the business of providing daily needs such as electricity, the toilet paper and telephone service - are in industries that offer reliable gains. Kraft, for example, saw its sales fall only 4% in 2009 even if consumers cut back elsewhere. Even with this fall, the company increased sales by 7.6% on average each year over the past five years.
Allowing defensive corporations to pay higher dividends that, say, a technology company which can be extended its activities quickly. AT & T Inc. pays a quarterly dividend of 43 cents per share, giving him 5.5 dividend yield. It is much higher that performance 3.18% on a note of the Treasury Board for 10 years and many more that an investor would get, say, consumer favorite Apple Inc., who do not pay a dividend.
Defensive stocks are also a cheap means of dividend index S & P 500 returns, which currently 15 times revenue costs and yields 2 percent. AT & T fresh only 9 times earnings, despite 2.8 per cent more this quarter.
Coca-Cola Co., another stock defensive, costs of 13 times earnings after winning 2.8% this quarter and is delivered with a yield of 2.8%. Google, by comparison, costs 23 times earnings and do not pay a dividend. It fell by 10% on the quarter. More yields mean that investors will always benefit even if actions stall, Goldberg said.
Of course, some investors buy defensive stocks simply because only much lower over the past two years.
Last year when his fall 52 percent landed among the five worst productive stocks among the 500 companies that make up the index S & P, Dimitre Genov, 58 million Artio Global Equity Fund Portfolio Managerpurchased Dean Foods. The company based in Dallas, largest dairy in the country, is 34% this quarter, thanks in large part to the quarterly results that topped Wall Street expectations after the company cut costs and raised its forecast for the year earnings because grocers raise costs for store-brand milkmain competitor of the company.
"The laggards last year are the winners now," he said.
