Weakness in Defensive Stocks Today

Here’s a good post for newer investors. Some stocks tend to group together based on similar behavior. A good example of this is stocks with high dividends. Investors will either reward or punish this key characteristic based on where we are in the economic cycle.

Dividend stocks have been lagging today. It’s nothing to be alarmed about. It’s simply a trend of the day. Here’s a chart showing the sector ETFs for utilities and real estate investment trusts. I use these two because both groups tend to have high dividends.

The chart shows their relative strength, meaning the ETF price divided by the S&P 500. This is important because it tells us how well the sector is performing relative to the rest of the market.

Notice how the blue and black lines tend to keep together. No, it’s not perfect, but it’s pretty decent considering how different the two industries are.

What happened is that towards the end of the last year, the perception was that the Federal Reserve was going to be more aggressive about raising interest rates. As a response, stocks with rich dividends (both sectors) lagged the market.

This is a good example of how a macro event can impact investing. I think it’s interesting how the market can look past the industry and focus on the characteristics of the security.

Posted by on August 7th, 2018 at 2:50 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.