In times of uncertainty, it can be helpful to see what has happened during other down cycles for stocks.
While we don’t know when the stock market has bottomed or has bottomed this cycle. But you might want to focus on an area that performed well during the recent downturn. You may miss out on some benefits, but you can also reduce your risk.
So which group of stocks surpassed a bear market bottom from the top of the market and rallied in good times as new highs were made?
One can look at the previous recession caused by the coronavirus pandemic in 2020. But the market downturn quickly reversed as investors realized that the Federal Reserve and the federal government would offer unprecedented stimulus to help consumers and businesses survive. Let’s look back.
This happened from the S&P 500 SPX close of +1.50%, then record high on September 20, 2018, through the bear market bottom of the benchmark index on December 24, 2018, and again to April 23, 2019 when it again set new levels all-time highs.
The chart shows 11 sectors of the S&P 500 that have performed well (excluding dividends) with the full index and continuous front month listings for West Texas Crude Oil CL throughout the 2018-2019 bear market and recovery cycle. Is. 1, -0.25% below:
| Price Changes – Full Cycle, September 20, 2018 to April 23, 2019 | Price changes from the low of the cycle on December 24, 2018 to the new closing high on April 23, 2019 | Price change from the closing high on September 20, 2018 to the cycle close on December 24, 2018 | |
|
Utilities |
9% |
1 1% |
-2% |
|
communication services |
7% |
29% |
-17% |
|
property |
7% |
19% |
-10% |
|
information technology |
5% |
37% |
-23% |
|
consumer goods |
3% |
17% |
-1 1% |
|
consumer goods |
2% |
32% |
-23% |
|
Industry- |
-1% |
31% |
-24% |
|
financial position |
-5% |
23% |
-23% |
|
material |
-5% |
22% |
-22% |
|
health care |
-7% |
8th% |
-14% |
|
energy |
-8th% |
27% |
-28% |
|
S&P500 |
0% |
25% |
-20% |
|
Crude Oil WTI (NYM $/bbl.) constant |
-6% |
56% |
-40% |
|
Source: FactSet |
|||
Bottom line: Utilities ended the 2018 bear market with the smallest decline and the highest rise of the entire cycle.
How have the sectors performed so far in 2022 from the S&P 500 closing record on January 3 to closing on July 6:
| Price changes from the S&P 500 record high on Jan 3rd | Closing price – July 6, 2022 | Closing price – January 3, 2022 | |
|
energy |
20% |
522.60 |
435.83 |
|
Utilities |
-1% |
356.31 |
360.29 |
|
consumer goods |
-6% |
758.08 |
804.55 |
|
health care |
-7% |
1,513.46 |
1,627.82 |
|
Industry- |
-17% |
738.19 |
887.59 |
|
material |
-18% |
459.75 |
561.82 |
|
property |
-19% |
259.28 |
321.63 |
|
financial position |
-20% |
527.00 |
658.13 |
|
information technology |
-26% |
2.276.11 |
3,086.75 |
|
communication services |
-28% |
193.09 |
268.97 |
|
consumer goods |
-32% |
1,121.30 |
1,655.17 |
|
S&P500 |
-20% |
3,845.08 |
4,796.56 |
|
Crude Oil WTI (NYM $/bbl.) constant |
31% |
$98.53 |
$75.21 |
The energy sector was the best performer thanks to a 31% rise in oil prices. However, it hit its own bear market last month amid bearish fears and a drop in crude oil.
But the utilities sector has shone again, boasting a weighted-projected annual dividend yield of 3.13%, based on consensus estimates from analysts polled by FactSet.
There’s something to be said for getting paid to weather a bear market while receiving dividends that keep you in the black as seven sectors and the entire index fall by double digits.
From Mark Hulbert: Dividend stocks are a top inflation-fighting investment that you’ll want in your corner right now
An easy way to invest in this area is with the Utilities Select Sector SPDR Fund XLU, -0.10%, which holds all the stocks in this sector of the S&P 500.
Screening of the ‘Balwar’ sector
But you might want to delve into the 29 stocks in the S&P 500 utilities sector. Among the analysts polled by FactSet, the majority of whom have a “buy” rating or an equivalent rating of 10, consensus is most likely implied by the target price:
| company | anchor | Share the rating “Buy”. | Closing price – July 6th | consensus price target | 12-month implied upside potential | dividend yield |
|
AES Corp. |
AES, +1.76% |
86% |
$21.04 |
$27.41 |
30% |
3.00% |
|
Nakshatra Energy Corporation |
CEG, +4.14% |
87% |
$56.76 |
$70.07 |
23% |
0.99% |
|
First Energy Corp. |
FE, -0.56% |
53% |
$37.44 |
$46.16 |
23% |
4.17% |
|
Edison International |
eex, +0.76% |
53% |
$62.25 |
$74.87 |
20% |
4.50% |
|
Public Services Enterprise Group Inc. |
PEG, -0.29% |
64% |
$62.98 |
$74.89 |
19% |
3.43% |
|
Sempra energy |
SRE, +0.15% |
65% |
$147.46 |
$173.56 |
18% |
3.11% |
|
PPL Corp. |
people, +0.74% |
53% |
$27.05 |
30.73 |
14% |
3.33% |
|
American Electric Power Company Inc. |
AEP, -0.30% |
69% |
$94.80 |
$107.43 |
13% |
3.29% |
|
NextEra Energy Inc. |
NEVER, +1.02% |
65% |
$79.57 |
$90.06 |
13% |
2.14% |
|
Centerpoint Energy Inc. |
CNP, -0.10% |
80% |
$29.34 |
$32.97 |
12% |
2.32% |
|
Source: FactSet |
||||||
Click on the ticker for more information about each company.
If you are interested in a stock, an easy way to start further research is by using MarketWatch’s ticker page. Click here for Tommy Kilgore’s guide to this tremendous free resource.
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