Defensive Sectors Are Breaking Out

Money rarely leaves the stock market.

Most of the time it rotates. Defensive sectors are breaking out.

Last week I spoke on how the Big Money Index is breaking out. The BMI reached levels not seen for months. Clearly, some areas of the market are leading that charge.

As investors face incredible uncertainty right now, like rising interest rates, ramping commodity prices, runaway inflation, quantitative tightening, and war – it’s hard for many to get excited about stocks. But is that the right mentality?

Sure, many of those negatives I named above are potential headwinds for hyper-growth stocks. But for other sectors it’s a strong tailwind. Fears of possible recession could mean opportunity for specific areas.

The Big Money is playing defense in this environment. And I see it as a bull market for 4 sectors. Let’s investigate the data.

Defensive Sectors Are Breaking Out

It’s not always despair when major indexes fail to make new highs. Year-to-date the S&P 500 (SPY ETF) is down 5.7%, while the NASDAQ 100 (QQQ ETF) is off 11.10%.

Looking at those negative returns head-on, many may say it’s an ugly market. For some groups it is. However, there are plenty of areas seeing green signals. It’s still a rotating market.

Let’s start from the top.

Below are the daily buys and sells of stocks. I want to point out 2 things: Selling has picked up since last week and buying is clearly present too:

This rotational action has been the theme for markets for well over a year. Growth stocks led then fell. Small-caps raged then plunged. Now, defensive stocks are breaking out.

From where I sit, Wall Street has been plowing into groups that are safer, yield-bearing, and possibly recession-proof.

In a world with inflation hitting 40-year highs, Real Estate has been uber-attractive to the Big Money for the “real assets” and notable yields offered by REITs. Last week I noted the off the charts buying in the sector. Well, it continues:

Data centers, storage, and apartment REITs are getting gobbled up. The latter makes sense with 30Y mortgage rates hitting 5% recently. Smart investors could be of the mindset that new home buyers will find it easier to rent rather than buy in this environment.

Again, let’s keep following the Big Money for other groups seeing buy action. Highlighted last week, big dividend-rich healthcare stocks are finding big buyers:

Big dividend-paying Pharma stocks are plowing higher. Their non-cyclical nature makes them a viable option for investors. No matter what the economy does, people are still going to get sick and need drugs.

As a reminder, those blue bars are actual stocks seeing Big Money buy activity. That’s the mission of MAPsignals – to find outlier stocks in any environment.

And as a great illustration of the big buying, have a look at AbbVie, Inc. (ABBV). This medical stock has been on fire like other healthcare players:

Disclosure: MAP founders hold a long position in ABBV in personal and managed accounts.

Each of those green bars are the times the stock ramped in price alongside big volumes. That’s relentless buying!

Again, I’m highlighting the opportunity in this difficult market: defensive stocks are breaking out. But there’s more! Where else would Big Money flow with uncertainty this high?

If you guessed Staples and Utilities companies, you’d be right. Big-box food companies have decades of history of stable sales and dividend-growth. It’s more supportive evidence of the defensive rally:

And now for Utilities. Big yields and stability are paramount. The group has no international exposure. Money is rushing there:

For well over a month, Utilities stocks have been buoyed by buyers. It doesn’t get more defensive than Utility companies.

And to tie-in the rotational aspect I mentioned earlier, it’s easy to see where most of the pain has been: high-growth and tech stocks. Since December, 87% of the Big Money signals in our Technology universe has been sold:

Sure, selling has slowed dramatically lately for the group. It’s been a brutal few months as many are aware (including my portfolio). All the potential tailwinds for the defensive groups have presented headwinds for growth names.

But that just tells me the opportunity right now is in the defensive groups. That’s the new leadership.

Let’s wrap up:

Here’s the bottom line: At MAPsignals, we sift data to spot opportunity. There are bull markets in 4 defensive areas: REITs, Healthcare, Staples, and Utilities. This tells me Wall Street is positioned for more uncertainty ahead.

If you’re looking for the names getting bought in our data, get started with a MAPsignals subscription today.

I believe there’s always opportunity. The Big Money helps spot it.

***And speaking of using data to find opportunity, our latest video is out: Best ETFs To Buy Now for April 2022. Jason shows how he navigates tough environments with data.

Always remember that the process is more important than the picks.

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