A significant shift is taking place in the stock market, possibly triggered by concerns over trade wars. Defensive stocks with low beta and low volatility in sectors like utilities, consumer staples, and telecom have been outperforming since mid-June. On the other hand, high beta momentum sectors such as technology are lagging behind. Some of the winning stocks in this shift include NextEra Energy Inc., Exelon Corp., Dominion Energy, Inc., Verizon Communications Inc., Charter Communications Inc., The Procter & Gamble Co., Anheuser-Busch InBev SA/NV, and Kimberly-Clark Corp.
If this trend continues, it could represent a significant change since high beta stocks, particularly in the information technology sector, have been the stars of the stock market for the past decade. Uncertainties remain regarding whether trade tensions will escalate or de-escalate and over what timeframe.
Defensive stocks like Anheuser-Busch, Charter Communications, Dominion Energy, Exelon, Kimberly-Clark, NextEra Energy, Procter & Gamble, and Verizon Communications have seen gains since June, while the S&P 500 Index has experienced a slight decline.
Low beta stocks have outperformed high beta stocks since June, signaling a momentum reversal in favor of low beta stocks. The Dow Jones U.S. Thematic Market Neutral Low Beta Index and the Dow Jones U.S. Thematic Market Neutral Momentum Index have been used to measure the recent performance of these stocks.
Verizon, a telecom provider, is seeing improvements in its wireless business and is set to launch its 5G network service later this year, promising faster transmission speeds and lower latency. NextEra, an electric utility company, is experiencing a breakout in its stock price, according to technical analysis. Consumer staples stocks like Procter & Gamble, Kimberly-Clark, and Anheuser-Busch have rebounded after a period of underperformance, driven by solid fundamentals and attractive valuations.