Tuesday’s credit-troubled warnings from Ally Financial may be the latest sign that the U.S. economy is headed for recession, but that doesn’t mean it’s time to rush into traditional defensive stocks. Lauren Goodwin, economist and chief market strategist at New York Life Investments, told CNBC that gainer stocks are unlikely to fit neatly into defensive sectors at this point in the economic cycle. “If you’re worried about growth, then your play is really quality equity and that can be spread across sectors. Sectors will ebb and flow and gain and lose as we approach a recession, but until jobless claims reliably rise or earnings growth is bad, I think equity sectors are a consistent play. I don’t see,” said Goodwin. When Wall Street experts refer to “defensive stocks,” they’re usually referring to the types of companies that have more resilient sales during economic downturns, such as utilities and hospitals. “Quality” is an investment factor aimed at measuring the financial strength of a company, and these stocks can be found in theoretically any industry. Goodwin also said the election cycle could create volatility in some sectors between now and November as investors try to gauge how different outcomes could change politics in the coming years. Another thing investors should consider is that some traditional defensive sectors are already on the rise. The Utilities Select Sector SPDR Fund ( XLU ) rose 13% in the third quarter, likely getting a boost from predicted energy needs from artificial intelligence. Meanwhile, the Consumer Staples Select Sector SPDR Fund ( XLP ) rose 9% and the Healthcare Select Sector SPDR Fund ( XLV ) rose more than 6%. XLU mountain 2024-07-01 Defense stocks performed well in the third quarter, as did consumer staples. Instead of moving into defensive stocks, Goodwin said, investors should focus on looking for ways to get higher returns in fixed income before the Federal Reserve starts cutting rates.
