These Stock-Market Sectors Tend to Do Best Before the Fed Delivers a Final Rate Hike, Says RBC

MarketWatch2022-10-11

Defensive sectors tend to perform the best before final rate hikes, along with energy and financials, says RBC Capital MarketsGETTY IMAGES/ISTOCKPHOTOWhile hopes for a pivot by Federal Reserve policy ...

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Comments

Bspn
2022-10-11
Bspn
K
Singman
2022-10-11
Singman
Like
TeslaLegend
2022-10-11
TeslaLegend
Nice
- ccl85:
  Ok
Troedas
2022-10-11
Troedas
Cool
Christoooo
2022-10-11
Christoooo
Iii
- LingEe:
  ok
Sunshinekim
2022-10-11
Sunshinekim
Just got to grit our teeth and wait
- MengKeng:
  totally agree on this
- TTrade:
  Oo

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They tended to perform the best within the major index in the six, three and one month periods before the final hikes in the past four Fed tightening cycles (see chart below), Calvasina wrote.\"However, consumer staples and utilities have faded recently with utilities lagging over the past month and staples underperforming since late September,\" she said. \"Healthcare has been the strongest performer of late among the classic defensives over the past month, lagging only energy whose performance has far outstripped the benchmark. Financials has also outperformed a bit.\"SOURCE: RBC US EQUITY STRATEGY, BLOOMBERGThe S&P 500 is down 24.2% year to date, according to Dow Jones Market Data. Except the energy sector, which had jumped 45.8% year over year, all other sectors are trading deep in the red so far in 2022.Stocks in consumer staples and utilities have been \"extremely expensive\" based on RBC's valuation, with their median price-earnings ratio close to historical peaks relative to the S&P 500 earlier this year. Meanwhile, healthcare has been the only defensive sector that is \"reasonably valued\" on their valuation model, and as of Friday's close, energy and financials sectors looked \"deeply undervalued,\" according to Calvasina.\"To the extent that the narrative in the equity community swings back towards the idea that an end to the hiking cycle can be expected in the not so distant future, we think energy and financials are the most interesting ways to position for that idea,\" said Calvasina.SOURCE: RBC US EQUITY STRATEGY, BLOOMBERGDespite the recent turmoil in the large-cap equity market, small-caps remain stable in terms of performance. Calvasina pointed out the stability in small-cap performance has been present since January and they are still in a narrow trading range in comparison to large-caps.\"While this doesn't necessarily tell us that a bottom in the broader U.S. equity market is imminent, it does tell us that the equity market is behaving rationally,\" said Calvasina. \"It has been our view for quite some time that small-caps, which underperformed large-cap dramatically in 2021, have already been de-risked and are baking in a recession.\"The U.S. stock indexes extended losses on Monday as investors still digested September jobs data while eagerly await key earnings, Fed minutes and inflation reports this week. The S&P 500 finished 0.7% lower, while the Dow Jones Industrial Average  declined 0.3%. The Nasdaq Composite  closed at the lowest level in over two years, dragged down by a slump in semiconductor 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