Investors are rediscovering the allure of boring stocks.
Worries about the Federal Reserve’s plan to curb inflation by raising interest rates sent stock markets higher, sending the S&P 500 index down 13% this year and 8.8% in April. Technology stocks have faced particularly harsh pressure, sending the Nasdaq Composite down 20% for the year and 13% for the month.
Instead, investors seem to be shifting their focus to companies that provide daily necessities — a preference that has intensified as more of such companies publish quarterly results. strong quarter. The consumer goods group was the only group in the S&P 500 in the green in April, with a 2.4% gain. The segment fell 1.3% on Monday as tech stocks rallied on the day.
According to FactSet, nearly 90% of the major companies that reported this season by midday Monday had posted profits that were above analyst estimates. Overall, across all industries in the index, the figure is closer to 80%.
Kraft Heinz Co.
Procter & Gamble Co.
and Kimberly-Clark Corp. all reported better-than-expected earnings and saw their shares rise at least 4% in April.
“The boring, slow-growing, high-quality companies are doing well,” said Louise Goudy Willoing, a partner at asset management firm Crewe Advisors. “The unattractive and sexy stuff in the pandemic tech marketplace has been and continues to grow.”
Investors this week will scrutinize earnings reports from companies including Molson Coors Beverage Co.,
and eBay Inc.
They will also be watching the Federal Reserve meeting, where central bank officials are expected to raise the benchmark interest rate by half a percentage point and the monthly jobs report for clues on strength. of the labor market.
One of the best performers in the S&P 500 last week was paint maker Sherwin-Williams Co..
, its shares jumped 9.4% in a single session after the company beat earnings expectations. Also on the chart is the environmental cleaning company Waste Management Inc ..
This person’s stock also rose after the surprise of positive earnings.
With U.S. inflation at a four-decade high, investors are closely watching how companies are reducing costs or passing increased funds to customers through higher prices. Reports from several consumer staples companies show that households are still undeterred by higher prices for basic items.
Hershey raised its outlook for the year as demand for its sweets and snacks remained strong despite higher prices. Coca-Cola reported higher sales due to strong demand and price increases against rising input costs.
“When it comes to everyday essentials, the majority of consumers are not price sensitive,” said Tom Galvin, chief investment officer at property management firm City National Rochdale. “They have jobs, they get a raise, they have cash and they are willing to pay more to enjoy life.… If I was going to pay an extra nickel for a can of my favorite drink, it was like, It’s OK.”
Growth rates aren’t unique to growth stocks that, like many tech companies, appreciate on future growth. Big tech companies delivered a mixed batch of earnings reports last week, sending major stock indexes swinging wildly.
While shares of Meta Platforms Inc.
spiked 18% on Thursday after Facebook’s parent company added more users than expected, Amazon.com Inc.
shares fell 14% the next day after the company posted its first quarterly loss in seven years.
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Such stocks have a heavy influence on indexes, like the S&P 500, which are measured by market value. At the end of last week, popular FAANG stocks — Meta Platforms, Amazon, Apple Inc.
and Google’s parent Alphabet Inc.
—Along with Microsoft Corp.
accounts for more than 21% of the S&P 500 index but accounts for nearly 37% of the index’s 2022 decline on a gross margin basis, according to S&P Dow Jones Indices.
The rush into defensive stocks was so intense that the major stocks started to sell out. The S&P 500 sector has traded for five sessions since mid last week with forward prices/earnings several times higher than the tech segment, the first time since April 2020, according to FactSet. At the end of last week, the consumer staples sector traded at 21.7x expected earnings over the next 12 months, while the technology sector traded at 21.5x.
Tech stocks, on the other hand, have fallen to the point where some investors say there are deals to be found. Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management, said he has bought growth stocks, including shares of big tech companies.
“These big tech stocks, with a few exceptions, are falling a lot,” he said. “I just don’t think their valuation is at a level that needs to be avoided anymore.”
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