Stocks have rebounded from a rough April, with some of the most unloved sectors over the past year leading the charge. Utilities and Consumer Staples have seen significant gains since mid-April, outperforming the broader market and catching the attention of investors.
On Wednesday, Utilities rose about 0.9%, outperforming the S&P 500, which saw a near-flat return. Since April 16, Utilities have surged nearly 12%, while Consumer Staples have risen almost 5%. These sectors, often considered “defensive,” have been among the worst performers in the S&P 500 over the last year.
Wall Street equity strategists believe that the recent surge in these sectors is not solely due to weaker-than-expected economic data, but rather a catch-up trade. Truist co-CIO Keith Lerner noted that Utilities were trading at their largest discount to the S&P 500 since 2009, presenting a potential buying opportunity. Similarly, Consumer Staples had underperformed the S&P 500 by almost 30% over the last year, making them more attractive to investors seeking value.
“With markets up so much as we’re up since October, people get nervous,” Lerner explained. “They want to rotate into something a little more defensive, take some profit taking…It’s also just saying, ‘Hey, what hasn’t worked and what could have an opportunity to do some catching up or hold up better should the market correct?'”
Charles Schwab senior investment strategist Kevin Gordon echoed this sentiment, noting that the pessimism surrounding Utilities had made them more attractively valued for investors seeking deeper value.
Overall, the recent rally in Utilities and Consumer Staples highlights investors’ willingness to explore overlooked sectors for potential opportunities in a market that continues to show resilience.
