Positioning with Defensive Stocks
Sébastien Galy, Sr. Macro Strategist Nordea Asset Management
With US consumption starting to come unstuck, investments fading and CEO Conference Board confidence at an all-time low, the outlook for equities is less constructive and the cycle of Fed easing just started.
Earnings expectations for this quarter are so low that they are being revised up and those of upcoming quarters are widely expected to be revised down significantly. Nonetheless, we will very likely avoid a recession in advanced economies, while we expect China’s growth to bounce back within another two quarters. In such an environment of low earnings growth and excessive talk of recession, the outlook for equities is sideways with a mild positive trend as we are currently seeing with momentum buoyed by hopes of a trade deal between the United States and China.
Within equities, some sectors offer a better risk reward for this phase of the business cycle when value and defensive stocks typically outperform. An example of this is Listed Infrastructure, which has limited drawdowns compared to broader indices while still offering some decent performance. As a reminder, we continue to recommend holding a diversified and resilient portfolio.