The Tell: Defensive stocks have traded poorly this year, but this strategist says they are in a sweet spot

U.S. stocks in the underperforming defensive sectors may be due for a comeback in the coming months as fears of an economic slowdown will push Treasury yields lower and increase demand for safe-haven assets in equities, according to Sevens Report Research.  “I do believe that we will have an [economic] growth scare in the coming months. That doesn’t mean I’m saying we’ll have a recession, but I do believe we have a growth scare looming and as such, I will begin to ‘nibble’ on utilities, staples and healthcare on the long side starting today, and I’ll rotate out of cyclicals as they’ve benefitted from solid growth and higher rates,” said Tom Essaye, the founder and the president of Sevens Report Research, in a Tuesday note. 

Defensive stocks in the utilities, healthcare and consumer staples sectors were under pressure in the past month as Treasury yields climbed after the U.S. government averted a shutdown and after investors expected the Federal Reserve to keep interest rates higher for longer as the U.S. economy remained strong.  See: Utilities stocks suffer worst day since 2020 as Treasury yields resume climb Stocks on the utilities, healthcare and consumer staples sectors are often referred to as “bond proxy” equities where their higher dividends helped replace lower bond yields over the past several years. However, they have become less attractive when the yields of some risk-free assets have started rising, making …

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