NEW YORK (Reuters) – U.S. stock investors worried geopolitical uncertainty and the Federal Reserve’s fight against inflation could dent economic growth are heading for defensive sectors they believe can better weather turbulent times and tend to offer strong dividends.
The healthcare, utilities, consumer staples and real estate sectors have posted gains so far in April even as the broader market has fallen, continuing a trend that has seen them outperform the S&P 500 this year.
Their appeal has been particularly strong in recent months, as investors worry the Fed will choke the U.S. economy as it aggressively tightens policy to combat surging consumer prices. Though growth is strong now, several big Wall Street banks have raised concerns the Fed’s aggressive measures could bring about a recession as they work their way through the economy.
The U.S. Treasury market sent an alarming signal last month, when short-term yields on some maturities of government bonds rose above longer term ones. The phenomenon, known as an inverted yield curve, has preceded past recessions. Meanwhile, fallout from the war in Ukraine remains a concern for investors.
“The reason (defensive stocks) are outperforming is people see all these headwinds to growth,” said Walter Todd, chief investment officer at Greenwood Capital.
While the S&P 500 has fallen nearly 8% in 2022, utilities have gained over 6%, staples has climbed 2.5%, healthcare has dipped 1.7% and real estate has declined 6%.
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