Time to Get Defensive

This column was originally published on Street Insight on Nov. 28 at 11:20 a.m. ET. It's being republished as a bonus for TheStreet.com and RealMoney.com readers. For more information about subscribing to Street Insight, please click here.

---

You can call it profit-taking, a pause that refreshes or any other euphemism for the ugly action we've seen recently. What I see underneath the action is a barely discernable rotation into defensive stocks, no doubt in response to economic data that continue to come in very weak, especially on the industrial side of the economy.

I am still bullish on the economy, but I believe it's prudent to diversify with stocks that can withstand slower economic growth ahead. Later in this column I'll name some names.

But the big picture first: With so many investors looking over the current valley of economic weakness to better times ahead -- as measured by the huge market run since the summer lows -- this market needs some better economic news.

While a weak dollar is not necessarily a bad thing, it does make it a tad more difficult for the Fed to cut rates next year. That's what everyone is counting on, especially the financial sector, which was counting on the yield curve growing more normal, not more inverted.

For the most part, there is a lot to like in equities. However, I believe caution is warranted. Increasing defensive holdings might not be such a bad idea at this juncture, especially those that will benefit from a weaker dollar.

The most recent durable-goods data were darn ugly, with orders, excluding transportation, down 1.7%. That was significantly lower than the 0.2% gain economists were forecasting.