Defensives may not be safe place to hide as U.S. stock market stumbles

“Last year it was really easy to hide out in defensives,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial. “It worked really well last year. I think it’s going to be more complicated this year.”

When compounded by the fact that some defensive stocks carry relatively expensive valuations, investors may avoid them even if the broader market sours. Fears of a recession induced by the Fed’s swift rate-hiking cycle hovered over markets last year, and investors gravitated toward defensive areas, confident of spending on medicine, food and other necessities continuing despite economic turmoil.

The health of the U.S. economy is set to become more clear with the release of the February jobs report next Friday, while investors will also be watching Congressional testimony next week from Fed Chair Jerome Powell. “You can get a pretty attractive yield in the bond market now, which hasn’t been the case,” said Mark Hackett, chief of investment research at Nationwide.

To be sure, other factors could aid the prospects of defensives. For example, a pickup in volatility in the bond market could improve the lure of defensive equities as a safe haven, said Nationwide’s Hackett.

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