Defensives, energy, dividend plays gain favor as market swoons anew

Fresh volatility in U.S. stocks is pushing some investors to hunker down in areas of the market that have been relatively strong during a brutal year for equities, including energy shares, defensive names and dividend-payers.

The S&P 500 is down 9% since mid-August, partially reversing a summer rebound after Federal Reserve Chairman Jerome Powell warned the central bank’s single-minded fight against inflation could lead to economic pain.

While few sectors of the market have been spared during the index’s nearly 18% selloff this year, some have fared comparatively better, a dynamic investors hope will blunt further losses in their portfolios if asset prices remain volatile.

Sectors such as consumer staples, healthcare and utilities have fallen less steeply than the broader S&P 500 throughout the year. Investors tend to gravitate toward companies in these areas during uncertain times, expecting consumers to continue ..

The energy sector remains one of the biggest winners of 2022 with a 44% gain year-to-date, despite a recent pullback.

At the same time, the S&P 500 dividend aristocrats index, which tracks companies that have increased dividends annually for the past 25 years, has fallen about 10% this year, a less severe drop than the overall market’s decline.

“Those type of ‘steady-Eddie’ names could tread water in a downward sloping market,” said Chad Morganlander, portfolio manager at Washington Crossing Advisors, who manages a strategy involving companies he expects to increase dividends in the months to come, including Johnson & Johnson and Clorox Co.

The S&P 500 ended the week with a loss of 3.3%. The index fell 1.1% on Friday after early gains from a U.S. jobs report that showed a labor market that may be starting to loosen gave way to worries about the European gas crisis.

The rally that has powered stocks through most of the summer has taken a big hit, with the S&P 500 now up about 7% from its mid-June trough. Should the index again make fresh lows this year, it would be the fourth time stocks gained at least 6% before r ..

Of course, areas that have outperformed this year come with their own risks. Energy prices have been volatile and could slide should a recession crimp global demand, pressuring energy stocks.

Some defensive areas, in particular the utilities and staples sectors, are trading at significantly higher price-to-earnings valuations than their historic averages. Investors could also abandon defensive plays if the economy avoids a downturn.

Horizon Investment Services owns shares of ..