Investors who are weary of the volatile market this week will turn to stocks in the consumer staples, utilities and health care sectors, which provide a safe haven during periods of great uncertainty.
Speculation on whether the economy is headed for a recession has emerged again, increasing fear among investors who are already skittish amid the global slowdown and plummeting crude oil prices. Many investors are seeking to shield the ETFs and mutual funds in their retirement portfolios from major losses and volatility.
Consumer Staples Are a Good Buy
As interest rates are set to rise again several times this year, companies that produce food and beverages, household and personal care products and energy as well as the health care and utilities generate a greater performance than those industries that rely on discretionary spending, said Robert Johnson, CEO of the American College of Financial Services in Bryn Mawr, Pa. The durable goods, autos, retail, mining and apparel industries tend to fare poorly in rising interest rate environments.
“People need to eat, put gas in their cars and go to the doctor no matter what the economic environment is like,” he said. “They can however, delay buying a new car, washing machine, new house or personal computer.”
History has demonstrated that these industries held their own during major declines and can protect “on the downside more,” said Edison Byzyka, vice president of investments for Hefty Wealth Partners in Auburn, Ind.
While both consumer staples and the energy sectors are “oversold, the consumer staples sector has held up real well during this recent decline, so it is the one-eyed man in the land of the blind,” said Matthew Tuttle, the portfolio manager of Tuttle Tactical Management U.S. Core ETF (TUTT).
Has Oil Hit the Bottom?
Despite the massive decline in oil prices and selloff during the past 18 months, the energy sector “is not for the faint of heart, but it has to bottom at some point,” Tuttle said.
Since the energy sector “tends to self-regulate, it is hard not to get excited about it if you take a longer term view,” said Jim Wright, a portfolio manager with Covestor, the online investing marketplace and chief investment officer of Harvest Financial Partners, a registered investment advisor in Paoli, Penn.
As exploration and production companies have slashed their capital expenditure budgets, the “economics of some drilling become very unattractive,” he said. This factor could slow down the glut in the market and with increased demand when the global economy recovers, oil prices will “rise again,” Wright said.
Among the energy stocks out there, Exxon (XOM) and Schlumberger (SLB) both have the “balance sheets and financial strength to weather the tough times,” Wright said. “They also may be able to pick up some distressed assets from weaker companies," he added. "We would expect the stock prices will be a lot higher in the next two to three years."