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Real Time Insight

Investors largely favored the safer or defensive sector stocks and ETFs during the first four months of the year, mainly due to lingering concerns about the health of the global economy and generally higher dividends paid by companies in these sectors.  

But the trend appears to have reversed in May. Many investors are now buying rather attractively priced cyclical stocks and selling defensive stocks, especially utilities.



January --April Return (%)

May Return (%)





Consumer Staples




















Arguments in favor of defensive stocks/against cyclical stocks

·         Dividend-paying stocks continue to be a better option for income investors, compared with bonds where  valuations are still high despite recent correction

·         The economy avoided the spring swoon but effects of payroll tax increase and sequester related cuts may finally show up in the second half of the year and investors will again want to hide in less risky corners of the market

·         Low-volatility stocks have outperformed the broader market over longer periods of time

Arguments in favor of cyclical stocks/ against defensive stocks

·         Rising bond yields will take some shine off dividend stocks

·         Cyclical sectors look very attractively priced now

·         Dividends in some cyclical sectors like technology have been rising

Do you think it is time to move from defensive sectors to cyclical sectors?

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