How to Find the Best Value in Defensive Sectors

As the Fed continues raising interest rates, the higher rates will make fixed-income instruments more attractive on a relative basis, and bond-like equities, like utilities, less enticing. Consequently, utilities may remain flat or underperform other segments of the equities market once rates start ticking higher. Still, some market observers see the recent slide in utilities stocks as a potential buying opportunity.

“Since 2010, the level of the 10-year Treasury yield has explained approximately 45% of the variation in the relative valuation – defined as the valuation of the sector versus the broader market – for the utilities sector. For the consumer staples sector the relationship explains approximately 63%,” according to BlackRock.

The good news is that large staples companies, many of which have recently been drubbed, are trading at discounts to the S&P 500. Data suggest the sector as a whole is less expensive than the broader market.

For more information on the consumer sector, visit our consumer staples category.