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5 Top Defensive Stocks to Ride Out Market Volatility in May

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Major U.S. stock bourses have been near record levels for quite some time now, banking on an improving economic scenario. While demand for new orders drove manufacturing activity recently, relaxation of coronavirus-induced stringent restrictions and reopening of businesses helped the U.S. service sector recover.

Consumers are equally confident about their financial conditions, with jobs being added at a steady clip and the jobless rate declining to 6% in March, per the Labor Department, citing a Bloomberg article. In comparison, unemployment rate touched 14.7% last April when the coronavirus onslaught ravaged U.S. economic activity. Nonetheless, consumers are now quite willing to spend, something that bodes well for economic growth. After all, sales at U.S. retailers jumped 9.8% in March on fiscal stimulus measures, as mentioned in a WallStreet Journal article.

However, renewed strength in the U.S. economy raised concerns about a rise in inflation. In fact, manufacturing companies particularly witnessed a sharp increase in input cost and the higher cost will certainly be passed on to customers. What’s more, the Biden administration’s massive federal sending plan coupled with a pick-up in the pace of vaccination may bolster economic growth vis-à-vis higher inflation. And the rise in inflation will lead to a tighter monetary policy, which doesn’t bode well for the stock market. After all, an easy monetary policy encouraged borrowing and spending during the crisis, helping the economy stay afloat.

To make matters worse, US Treasury secretary Janet Yellen on May 4 said that the Fed may need to hike key interest rates overtime to keep the economy from overheating. Thus, market pundits now believe that the Fed may raise interest rates ahead of its current schedule if inflation is strong enough. The Fed had earlier said that it will stick to ultra-low-interest rate through 2023. Nevertheless, concerns about a tighter monetary policy dragged down especially growth-oriented tech stocks yesterday. Several large-cap tech behemoths such as Apple, Microsoft, and Amazon along with the tech-laden Nasdaq tumbled on May 4.

However, amid such uncertainties, investors should consider safer defensive stocks. This is because these stocks are non-cyclical in nature, and their performance is not directly related to activities in the broader market. Irrespective of market gyrations, their products are in constant demand. Such companies are actually part of the utility and consumer staples sector. Needless to say, the need for electricity, gas, and water will always stay. Similarly, demand for food, beverage and tobacco, to name a few, remains unaltered despite market volatility.

We have, thus, highlighted five stocks from the aforementioned areas that currently boast a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CMS Energy Corporation (CMS - Free Report) operates as an energy company, primarily in Michigan. The company operates through four segments: Electric Utility, Gas Utility, Enterprises and EnerBank. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 1.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 8.6%.

MYR Group, Inc. (MYRG - Free Report) is a holding company of leading specialty contractors serving the electrical infrastructure market throughout the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 3.4% over the past 60 days.  The company’s expected earnings growth rate for the current year is 4.6%.

Archer Daniels Midland Company (ADM - Free Report) is one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 9.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 17.3%.

Pilgrims Pride Corporation (PPC - Free Report) produces, processes, markets, and distributes fresh, frozen, and value-added chicken and pork products to retailers, distributors, and foodservice operators in the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 5.1% over the past 60 days. The company’s expected earnings growth rate for the current year is nearly 102%.

J & J Snack Foods Corp. (JJSF - Free Report) is an American manufacturer, marketer, and distributor of branded niche snack foods and frozen beverages for the food service and retail supermarket industries. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 16.6% over the past 60 days. The company’s expected earnings growth rate for the current year is 115.3%.

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