Investors searching for safer areas in the US stock market are finding that traditional shelters that held up in last year's sell-off, such as consumer staples, utilities and health care, may be more problematic this time.
After rebounding sharply in January, the benchmark S&P 500 is wobbling again as investors worry the Federal Reserve will take interest rates higher than previously expected and keep them elevated for longer to thwart inflation.
Sell-offs can send investors looking for safety in so-called defensive names, which tend to have solid dividends and businesses that can weather rocky times.
"Last year, it was really easy to hide out in defensives," said Anthony Saglimbene, chief market strategist at Ameriprise Financial. “It worked really well last year. I think it’s going to be more complicated this year.”
In the initial weeks of 2023, the argument for defensives has been weakened by evidence the economy remains strong, as well as by competition from assets such as short-term US Treasuries and money markets offering their highest yields in years.
Sectors such as utilities are known as bond proxies because they typically provide stable earnings and safety in the way government bonds have done in the past.
When compounded by the fact some defensive stocks carry relatively expensive valuations, investors may avoid them even if the broader market sours.
Utilities, health care and consumer staples held firm in last year's punishing markets, posting relatively small declines of about 1 per cent to 3.5 per cent as the overall S&P 500 tumbled 19.4 per cent.
So far this year, those groups have been the three biggest decliners of the 11 S&P 500 sectors, with utilities down about 8 per cent, health care off 6 per cent and staples dropping 3 per cent as of Thursday's close.
The S&P 500 was last up 3.7 per cent in 2023, but pulled back since posting its best January performance since 2019.
Fears of a recession induced by the Fed's swift rate-hiking cycle hovered over markets last year and investors gravitated towards defensive areas, confident that spending on medicine, food and other necessities would continue despite economic turmoil.
Strong recent economic data, including stunning employment growth in January, has prompted investors to rethink expectations of an imminent downturn.
"If you look at the equity market, it’s telling you there’s no recession risk basically,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.
Defensives so far this year have been a "pain trade", he said.
The health of the US economy will become clearer with the release of the February jobs report next Friday, while investors will also be watching Congressional evidence next week from Fed chairman Jerome Powell.
High dividends helped defensive shares as a place to park money in turbulent times over the past decade, especially since traditionally safe assets yielded little.
That dynamic changed in the past year as soaring inflation and the Fed's rate hikes pushed up yields on cash and Treasuries.
The utilities sector has a dividend yield of 3.4 per cent, staples stands at 2.7 per cent, while health care offers 1.8 per cent, data from S&P Dow Jones Indices showed this week. By contrast, the six-month US Treasury note yields nearly 5.2 per cent.
Last year, it was really easy to hide out in defensives. It worked really well last year. I think it’s going to be more complicated this year
Anthony Saglimbene,
chief market strategist at Ameriprise Financial
“You can get a pretty attractive yield in the bond market now, which hasn’t been the case,” said Mark Hackett, chief of investment research at Nationwide.
Meanwhile, valuations in some cases are also relatively expensive. The utilities sector trades at 17.7 times forward earnings estimates, a nearly 20 per cent premium to its historic average, while staples trade at a price-equity of 20 times, about 11 per cent above its historic average, Refinitiv Datastream said.
Health care's price-equity ratio of 17 times is slightly below its historic average. However, the sector's financial prospects this year are relatively weak; S&P 500 healthcare earnings are expected to fall 8.3 per cent against a 1.7 per cent increase for the overall S&P 500, Refinitiv said.
To be sure, other factors could aid the prospects of defensives. For example, an increase in volatility in the bond market could improve the lure of defensive equities as a safe haven, Mr Hackett said.
Should concerns about recession increase sharply, as they did last year, defensives could outperform again on a relative basis, investors have said.
Ameriprise is overweight health care and staples, said Mr Saglimbene, who sees an uncertain macro environment.
But more broadly, the company is underweight equities and is more favourable towards fixed income.
“I think bonds are a better defensive position today than the traditional defensive sectors are,” he said.
The Good Liar
Starring: Helen Mirren, Ian McKellen
Directed by: Bill Condon
Three out of five stars
Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
Fire and Fury
By Michael Wolff,
Henry Holt
COMPANY PROFILE
Name: Akeed
Based: Muscat
Launch year: 2018
Number of employees: 40
Sector: Online food delivery
Funding: Raised $3.2m since inception
First Person
Richard Flanagan
Chatto & Windus
Specs
Engine: Dual-motor all-wheel-drive electric
Range: Up to 610km
Power: 905hp
Torque: 985Nm
Price: From Dh439,000
Available: Now
THE BIO
Born: Mukalla, Yemen, 1979
Education: UAE University, Al Ain
Family: Married with two daughters: Asayel, 7, and Sara, 6
Favourite piece of music: Horse Dance by Naseer Shamma
Favourite book: Science and geology
Favourite place to travel to: Washington DC
Best advice you’ve ever been given: If you have a dream, you have to believe it, then you will see it.
Expert input
If you had all the money in the world, what’s the one sneaker you would buy or create?
“There are a few shoes that have ‘grail’ status for me. But the one I have always wanted is the Nike x Patta x Parra Air Max 1 - Cherrywood. To get a pair in my size brand new is would cost me between Dh8,000 and Dh 10,000.” Jack Brett
“If I had all the money, I would approach Nike and ask them to do my own Air Force 1, that’s one of my dreams.” Yaseen Benchouche
“There’s nothing out there yet that I’d pay an insane amount for, but I’d love to create my own shoe with Tinker Hatfield and Jordan.” Joshua Cox
“I think I’d buy a defunct footwear brand; I’d like the challenge of reinterpreting a brand’s history and changing options.” Kris Balerite
“I’d stir up a creative collaboration with designers Martin Margiela of the mixed patchwork sneakers, and Yohji Yamamoto.” Hussain Moloobhoy
“If I had all the money in the world, I’d live somewhere where I’d never have to wear shoes again.” Raj Malhotra
Ain Dubai in numbers
126: The length in metres of the legs supporting the structure
1 football pitch: The length of each permanent spoke is longer than a professional soccer pitch
16 A380 Airbuses: The equivalent weight of the wheel rim.
9,000 tonnes: The amount of steel used to construct the project.
5 tonnes: The weight of each permanent spoke that is holding the wheel rim in place
192: The amount of cable wires used to create the wheel. They measure a distance of 2,4000km in total, the equivalent of the distance between Dubai and Cairo.
MATCH INFO
Tottenham Hotspur 1
Kane (50')
Newcastle United 0
'Hocus%20Pocus%202'
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Teaching in coronavirus times
South Africa v India schedule
Tests: 1st Test Jan 5-9, Cape Town; 2nd Test Jan 13-17, Centurion; 3rd Test Jan 24-28, Johannesburg
ODIs: 1st ODI Feb 1, Durban; 2nd ODI Feb 4, Centurion; 3rd ODI Feb 7, Cape Town; 4th ODI Feb 10, Johannesburg; 5th ODI Feb 13, Port Elizabeth; 6th ODI Feb 16, Centurion
T20Is: 1st T20I Feb 18, Johannesburg; 2nd T20I Feb 21, Centurion; 3rd T20I Feb 24, Cape Town
GAC GS8 Specs
Engine: 2.0-litre 4cyl turbo
Power: 248hp at 5,200rpm
Torque: 400Nm at 1,750-4,000rpm
Transmission: 8-speed auto
Fuel consumption: 9.1L/100km
On sale: Now
Price: From Dh149,900