2023-03-08 06:41:29 ET
Fed Chairman Jerome Powell undercut pivot expectations and dented stocks and bonds in his recent Congressional testimony.
The S&P 500 ( SP500 ) ( NYSEARCA: SPY ), Nasdaq ( COMP.IND ), Nasdaq 100 ( NDX ) ( QQQ ) and Dow ( DJI ) ( DIA ) all fell more than 1% yesterday. The S&P ( IVV ) ( VOO ) is still above its 200-day moving average of 3,940 and survived a double test of critical technical levels last week, according to Morgan Stanley.
But with further inversion of the yield curve (with the 2s10s more than 1 percentage point apart for the first time since 1981) the soft landing scenario becomes harder to manifest.
BofA ran three screens for "sleep at night" stocks.
The high-quality defensives scree n includes S&P 500 stocks "in the bottom quintile by GDP data" and are ranked B+ or above in S&P by S&P Quality Rank.
- MarketAxess Holdings ( MKTX ), GDP beta -0.60, S&P quality rank A
- CarMax ( KMX ), -0.70, B+
- Activision Blizzard ( ATVI ), -0.60, A-
- PulteGroup ( PHM ), -0.54, B+
- AbbVie ( ABBV ), -0.44, A-
- Tractor Supply ( TSCO ), -0.53, A+
- Equifax ( EFX ), -0.45, B+
- FleetCor ( FLT ), -0.38, B+
- Kroger ( KR ), -0.32, A-
- McCormick & Co. ( MKC ), -0.29, A-
- Lowe's ( LOW ), -0.31, A+
- Lennar ( LEN ), -0.31, A
- AutoZone ( AZO ), -0.30, B+
- Humana ( HUM ), -0.28, A-
- Chipotle ( CMG ), -0.28, B+
The consistent dividend growers screen ranks S&P stocks that have consistently growth their dividends each year from 1981-2022:
- Walmart ( WMT ), dividend growth CAGR over period 19.1%
- Medtronic ( MDT ), 15.2%
- McDonald's ( MCD ), 14.5%
- Automatic Data Processing ( ADP ), 13.2%
- Walgreens Boots Alliance ( WBA ), 12.8%
- Sherwin-Williams ( SHW ), 12.6%
- Archer-Daniels-Midland ( ADM ), 12.3%
- Target ( TGT ), 11.4%
- J&J ( JNJ ), 11.4%
- Hormel ( HRL ), 11.2%
- Nordson ( NDSN ), 10.5%
- PepsiCo ( PEP ), 10.4%
- Becton, Dickinson ( BDX ), 10.3%
- W.W. Grainger ( GWW ), 10.1%
- Coca-Cola ( KO ), 9.2%
"In downturns, low volatility stocks typically outperform, but we see several differences this cycle vs. prior downturns (e.g., persistent inflation, healthy consumer/corporate balance sheets, etc.), where certain cyclicals can still outperform, especially the ones that exhibited lower volatility and improved quality in recent years," strategist Savita Subramanian wrote in a note.
In the new low volatility stocks screen , BofA identified companies that saw lower 6-month and 1-year betas than the 5-year beta, have a lower beta than 1, and saw the biggest decline in 6-month beta vs. the 5-year beta:
- Humana ( HUM ), 5-year beta 0.83, 1-year beta 0.47, 6-month beta 0.27, change vs. 5-year beta -68%
- McKesson ( MCK ), 0.77, 0.39, 0.28, -64%
- Cigna ( CI ), 0.94, 0.52, 0.38, -60%
- Lamb Weston ( LW ), 0.84, 0.65, 0.37, 56%
- Elevance Health ( ELV ), 0.93, 0.53, 0.42, 55%
- Molina Healthcare ( MOH ), 0.88, 0.50, 0.40, 55%
- Activision Blizzard ( ATVI ), 0.64, 0.31, 0.30, 54%
- W.R. Berkeley ( WRB ), 0.86, 0.49, 0.40, 54%
- Cardinal Health ( CAH ), 0.80, 0.50, 0.38, 52%
- UnitedHealth ( UNH ), 0.90, 0.55, 0.44, 51%
- Incyte ( INCY ), 0.73, 0.55, 0.36, 50%
- Globe Life ( GL ), 1.04, 0.66, 0.53, 49%
- Merck ( MRK ), 0.54, 0.28, 0.28, 49%
- Ulta Beauty ( ULTA ), 1.13, 0.95, 0.58, 48%
- Bristol-Myers Squibb ( BMY ), 0.54, 0.29, 0.28, 48%
Screen for dividends and dividend grades .
For further details see:
Sleep-at-night stocks for those hedging or risk averse