Stock Trends

Defensive stock focus

Good morning,

Markets pulled back in April but in contrast to the fall 2023 correction, defensive sectors finally provided some outperformance.

In particular, utilities were showing relative strength before the market topped at the end of March and hit a 3-month relative high last week.

Sectors like consumer staples and healthcare have been a more mixed bag, but this week I wanted to focus on the defensive sectors to show what is working, what isn’t working, and where conservative (and not-so-conservative) opportunities can be found in the 3 most defensive sectors.

We’ll look at:

• Defensive utilities breaking out

• Aggressive utilities benefitting from secular trends

• The mixed bag of consumer staples

• Why the healthcare sector has struggled

• Some healthcare stocks bucking the weak trend

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Defensive utility stocks showing strength

Our ETF portfolios recently added XLU, covering an underweight position following the sector’s 3-month relative high. That’s been the right call so far, with the sector up another 2.7% this week but be careful chasing individual names. Many stocks (like NEE below) are reaching their highest overbought readings in years. That’s a long-term bullish sign of demand but a tactical concern.

NEE: NextEra Energy

NEE is the sector’s largest stock, weighing in at more than 14% of XLU. Legitimate trend change with the 50-DMA up above the 200-day, an extreme overbought reading, and the $70 resistance level taken out.

PEG: Public Service Enterprise Group

PEG has broken out from a base that targets the 2022 highs. I think it can get there but the closer you get, the poorer the risk/reward short-term. Better on a pullback or consolidation.

DUK: Duke Energy

Duke just made the 52-week high list for the first time since it topped in April 2022. In addition, the inverse head and shoulders breakout targets those highs near $116. Duke hasn’t been as strong as the first 2, but is a cleaner technical chart for new money. I would put a stop just below the breakout point, around $97/share.

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These aren’t your grandfather’s utilities