In times of uncertainty, it can be helpful to look at what has happened during other down cycles for stocks.
While we don’t know when the stock market will bottom this cycle, or if it will already. But you might want to bias towards a sector that has performed well in previous downturns. You may miss out on some recovery to the upside, but you can also lower your risk.
So which groups of stocks have performed best, from market tops to bear market bottoms to good times hitting new highs?
One could look to the previous recession caused by the coronavirus pandemic in 2020. But that 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 further back.
That’s what happened with the SPX of the S&P 500
the then-record closing high on September 20, 2018, above the bear market closing low of the benchmark index on December 24, 2018, and then to April 23, 2019, when it again set new all-time highs.
Chart shows the 11 sectors of the S&P 500 ranked by how well they have performed (excluding dividends) throughout the 2018-2019 bear market and recovery cycle, with the full index and consecutive front month listings for West Texas Crude Oil CL
at the bottom:
| Price change – full cycle, from September 20, 2018 to April 23, 2019 | Price change from the cycle low on December 24th, 2018 to the new closing high on April 23rd, 2019 | Price change from the closing high on September 20, 2018 to the cycle closing low on December 24, 2018 | |
|
Utilities |
9% |
11% |
-2% |
|
communication services |
7% |
29% |
-17% |
|
property |
7% |
19% |
-10% |
|
information technology |
5% |
37% |
-23% |
|
consumer goods |
3% |
17% |
-11% |
|
Consumer Discretionary |
2% |
32% |
-23% |
|
Industry |
-1% |
31% |
-24% |
|
finance |
-5% |
23% |
-23% |
|
materials |
-5% |
22% |
-22% |
|
health care |
-7% |
8th% |
-14% |
|
energy |
-8th% |
27% |
-28% |
|
S&P500 |
0% |
25% |
-20% |
|
Crude Oil WTI (NYM $/bbl.) Continuous |
-6% |
56% |
-40% |
|
Source: FactSet |
|||
The bottom line: Utilities fell the least until the bottom of the 2018 bear market and rose the most over the cycle.
So far in 2022, from the S&P 500’s closing record on January 3 to the close on July 6, sectors have performed as follows:
| Price change from S&P 500 record closing 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 |
|
materials |
-18% |
459.75 |
561.82 |
|
property |
-19% |
259.28 |
321.63 |
|
finance |
-20% |
527.00 |
658.13 |
|
information technology |
-26% |
2.276.11 |
3,086.75 |
|
communication services |
-28% |
193.09 |
268.97 |
|
Consumer Discretionary |
-32% |
1,121.30 |
1,655.17 |
|
S&P500 |
-20% |
3,845.08 |
4,796.56 |
|
Crude Oil WTI (NYM $/bbl.) Continuous |
31% |
$98.53 |
$75.21 |
The energy sector was the best performer, helped by the 31% rise in oil prices. Last month, however, it hit its own bear market amid recession fears and a pullback in crude oil.
But the utilities sector has shone again, boasting a weighted annualized dividend yield of 3.13%, based on consensus estimates from analysts polled by FactSet.
There is some merit in getting paid to ride out a bear market while receiving dividends that will keep you in the black, as seven sectors and the entire index suffer double-digit declines.
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 the sector is with the Utilities Select Sector SPDR Fund XLU,
which owns all the stocks in that sector of the S&P 500.
Bulwark sector screening
But you might want to delve into the 29 stocks in the S&P 500 utilities sector. Here are the 10 majority buy or equivalent ratings among analysts polled by FactSet that have the most upside implied by the consensus price targets:
| company | ticker | Share “Buy” reviews | Closing price – July 6th | consensus price target | 12-month implied upside potential | dividend yield |
|
AES Corp. |
AES |
86% |
$21.04 |
$27.41 |
30% |
3.00% |
|
Constellation Energy Corp. |
CEG |
87% |
$56.76 |
$70.07 |
23% |
0.99% |
|
First Energy Corp. |
FE |
53% |
$37.44 |
$46.16 |
23% |
4.17% |
|
Edison International |
EIX |
53% |
$62.25 |
$74.87 |
20% |
4.50% |
|
Public Services Enterprise Group Inc. |
CONNECTION |
64% |
$62.98 |
$74.89 |
19% |
3.43% |
|
Sempra energy |
SRE |
65% |
$147.46 |
$173.56 |
18% |
3.11% |
|
PPL Corp. |
PPL |
53% |
$27.05 |
$30.73 |
14% |
3.33% |
|
American Electric Power Co. Inc. |
AEP |
69% |
$94.80 |
$107.43 |
13% |
3.29% |
|
NextEra Energy Inc. |
NO |
65% |
$79.57 |
$90.06 |
13% |
2.14% |
|
Center Point Energy Inc. |
CNP |
80% |
$29.34 |
$32.97 |
12% |
2.32% |
|
Source: FactSet |
||||||
Click on the tickers to learn more about each company.
An easy way to start further research if you are interested in any of the stocks is to use the MarketWatch ticker page. Click here for Tomi Kilgore’s guide to this tremendous free resource.
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