Ally Financial’s credit warning on Tuesday may be the latest sign that the U.S. economy is approaching a recession, but that doesn’t mean it’s time to jump into traditional defensive stocks. Lauren Goodwin, economist and chief market strategist at New York Life Investments, told CNBC that winners are unlikely to fit neatly into defensive sectors at this point in the cycle. “If you’re worried about growth, it’s really quality stocks you should be investing in, and that can span sectors. Sectors will go up and down, win and lose as we get closer to a recession, but I don’t see equity sectors being a consistent bet until we see a solid rise in jobless claims or earnings growth slows,” Goodwin said. When Wall Street pros say “defensive stocks,” they’re usually referring to the types of companies whose sales are more resilient in a downturn, such as utilities and hospitals. “Quality” is an investment factor that focuses on a measure of a company’s financial strength, and in theory, such stocks can be found in any industry. Goodwin also said that the election cycle could create sector volatility between now and November as investors try to gauge how different outcomes would change policy in the coming years. Another thing investors should consider is that some traditional defensive sectors are already trending higher. The Utility Select Sector SPDR Fund (XLU) rose 13% in the third quarter, likely driven by artificial intelligence forecasts of energy demand. Meanwhile, the Consumer Staples Select Sector SPDR Fund (XLP) is up 9%, and the Healthcare Select Sector SPDR Fund (XLV) is up more than 6%. XLU mountain 2024-07-01 Defensive stocks such as consumer staples performed well in the third quarter. Instead of moving into defensive stocks, investors should focus on finding ways to lock in higher yields on bonds before the Federal Reserve starts cutting interest rates, Goodwin said.
Not yet time to move into defensive stocks: New York Life’s Goodwin
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