Investors flee tech for utilities as stocks slide

We Energies parent hits record price of $72.09

NEW YORK – The stock market’s plunge over the last three weeks has investors showing love to companies they had been ignoring.

Steady, plodding, un-sexy stocks like utilities, household goods makers and real estate investment trusts have done far better than the rest of the market during the recent stumble. And Wall Street is now shunning the stocks that have been leading the market over the last decade, such as technology and consumer-focused companies.

The trend is playing out locally, as the stock for WEC Energy Group Inc., the Milwaukee-based parent company of We Energies, rose to an all-time high of $72.09 Wednesday. The stock closed at $70.59 Thursday.

William A. Delwiche, managing director and investment strategist for Milwaukee-based Robert W. Baird & Co., said investors have been moving to defensive stocks over the past month or two, but the migration has drawn more focus in this week’s bumpy market.

“You’re seeing some relative outperformance from things like utilities and consumer staples,” Delwiche said Thursday. “That is a natural reaction to turbulence. People try to hunker down a little bit.”

The S&P 500 index, the main measuring stick for the U.S. market, dropped 9.2 percent from Oct. 3 through Wednesday. The Nasdaq composite, which has a high concentration of tech companies, slumped 11.4 percent.

The volatility continued Thursday, when the market recovered some ground. The S&P 500 index added 49 points to 2,705. The Dow Jones Industrial Average rose 401 points, or 1.6 percent, to 24,984. It was up 520 earlier.

The S&P 500 suffered two separate six-day losing streaks this month and had fallen for 13 of the last 15 days. That stretch included a couple of big rallies, but the losses erased the benchmark index’s gains from earlier in the year. Technology companies have plunged, and the Nasdaq composite is coming off its biggest oneday loss in seven years.

Stocks started skidding recently

when a combination of strong economic data and comments from the Federal Reserve led to a big jump in interest rates. Investors began to worry that interest rates would go higher than they expected, and that those increased rates would slow down economic growth. That’s been particularly damaging to high-flying stocks like Amazon and Netflix because investors who buy them are expecting many years of strong profits, which can be eroded by climbing rates.

“Those sectors are particularly vulnerable because they’re (valued) based on cash flows longer into the future,” said Kate Warne, an investment strategist for Edward Jones.

Meanwhile investors are worried that growth in company profits will slow down, and the U.S.-China trade dispute continues to drag on. All of that made investors wary of investing in companies that depend on economic growth, such as technology, industrial and consumer-focused firms. Tech and retail companies have done far better than the rest of the stock market since the Great Recession of 2008-’09, with favorites such as Apple, Amazon and Netflix racking up huge gains year after year.

No stock rises forever, and with that much to worry about, maybe it’s not a surprise that companies that depend on economic growth would suffer some bumps and bruises. But it’s been quite a turnaround: Companies including Amazon, Caterpillar and Nvidia are bringing up the rear in the S&P 500 while companies such as Walgreens, Conagra and PPL are leading the way.

Considered boring or defensive, these stocks are favored by investors when markets get rough. The amount of cash they pay out in dividends makes them relatively stable, but with the U.S. economy speeding up the last few years, there hasn’t been much call for them. Over the last few weeks, though, those stocks haven’t just done better than the rest of the market, they’ve actually climbed while most other stocks fell.

Those groups of stocks don’t depend much on economic growth: Whether the economy is booming or slowing, people will likely spend about the same amount on breakfast cereal, toilet paper or water, but in a period of slower growth or a recession, workers who are taking home less pay might not buy a home or might spend less on video games or travel.

Warne said the market’s recent weakness won’t last because the economy is still doing well. But she said the days of defensive stocks lagging far behind the rest of the market are probably over.

“The gap we’ve seen over the last few years is likely to narrow a lot,” she said. “The real questions behind the scenes is, are we in an entirely different environment? And I think the answer is no.”