As the coronavirus outbreak adds to uncertainty and causes wide swings in equities, some segments of the markets and related sector-related exchange traded funds could be more capable of weathering the storm.
Among the S&P 500 names, company stocks that ended the first quarter in the green include those like consumer goods companies Clorox, J.M. Smucker and Hormel Foods, the Wall Street Journal reports. Healthcare companies like Gilead Sciences, Eli Lilly and Regeneron Pharmaceuticals also stood out as companies try to develop treatments or vaccines for the coronavirus. Additionally, tech companies like Microsoft, Nvidia, and Akamai are building infrastructure toward cloud computing.
A lot of these stocks are “recession blue-chips,” Shawn Snyder, Head of Investment Strategy at Citi Personal Wealth Management, told the WSJ.
Consequently, ETF investors can potentially capture the potential strength in these segments through targeted sector plays, such as the widely observed Consumer Staples Select SPDR (NYSEArca: XLP), Technology Select Sector SPDR Fund (XLK) and Health Care Select Sector SPDR ETF (NYSEArca: XLV).
Snyder argued that consumer staples, healthcare companies, and mature tech companies have some traits in common: they have few, if any, unprofitable quarters, and they have a cash hoard on their balance sheets to buffer against downtimes.
Furthermore, twenty of the first quarter’s outperformers generate dividends, and most of have reasonable price-to-earnings and enterprise value-to-sales ratios. These are all traits of companies with fundamental strengths.
On the other hand, brick-and-mortar retailers were among the worst hit, with companies issuing workforce furloughs and closing stores with no foot traffic.
The coronavirus pandemic has caused a shift in the way Americans do business. Many traditional outlets that require face-to-face contact are struggling. Meanwhile, consumer staples have enjoyed strong demand as more stock up on basic goods, healthcare has found strength on continued demand for health services and technology companies are even enjoying continued business in response to the shift toward a work-at-home environment.
For more information on the markets, visit our current affairs category.