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2019’s Best Sectors To Own

Ho-Ho… Uh-Oh!

As another turbulent, treacherous week draws to a close today, investors are beginning to wonder if the traditional year-end Santa Claus rally is NOT coming to town this year.

After a spirited rally Monday, stocks headed south in a hurry the rest of this trade-shortened week.

Between Tuesday and Thursday the Dow dropped a stunning 1,500 points, before an equally stunning reversal yesterday afternoon cut the back the losses.

These violent market swings are certainly unnerving for investors who are accustomed to enjoying a seasonally bullish stretch for stocks in December.

Over the past thirty years, global stocks have gained an average of 2% during the month of December.

That’s the best performance of any other month of the year. More recently however, the holiday seasonal surge has been less consistent. In fact, stocks have declined in two of the past four years during December.

And with December 2018 just a week old, the S&P 500 is already down -3.5%!

Santa’s stock market elves have their work cut out for them.

How To Stave Off Disaster

There is one place investors have been able to seek some refuge from turbulent market conditions.

Seeking Calm

Source: Bloomberg

High quality defensive stocks have done a good job of holding up in volatile markets, as you can see in the chart above. And that’s exactly what they’re supposed to do.

Low volatility defensive stocks have easily outperformed the S&P 500 over the past two months. I expect this trend to continue.

2019’s Best Sectors To Own

Whenever interest rate spreads tighten and volatility rises, as both have done this year, history shows us that the highest quality stocks typically outperform the overall stock market.

Companies with stable, predictable earnings, low debt and consistently growing dividends are the stocks to own in this environment.

High Quality

Sure enough, stocks with the highest quality ratings of B+ to A+ outperform low quality shared and the overall market when volatility rises, as you can see above. And when you take a closer look at individual sectors of the S&P 500 Index, you’ll find the highest quality stocks in these sectors: Technology, Staples, Healthcare and Industrial.

Financial stocks also get high marks in terms of quality, but the flattening yield curve can have a bad influence on financial stock performance, so I’m treading lightly in that sector.

Here’s an easy way to play this trend in a single trade.

The Invesco S&P 500 Quality ETF (SPHQ) is a fund that tracks the higher quality stocks in the index. This ETF has 72% of its assets invested in technology, consumer staples, healthcare and industrial shares.

And it provides a great antidote to increased market volatility.

Here’s to growing your wealth,

Mike Burnick

Mike Burnick
Chief Income Expert, Mike Burnick’s Wealth Watch

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Mike Burnick

With over 25-years of professional investment experience, Mike Burnick was a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. Mike joined Weiss Research in 2002 as an analyst and writer, and in 2008 was named Director of Research and Client Communications at Weiss Capital Management, where he assisted...

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