Of late, investors have been apprehensive about the Fed re-embarking on its path of accelerated interest rate hikes to bring down inflation, which is back, courtesy of rising energy prices. Saudi and Russia’s decision to not raise production till the end of this year has fueled this price rise. Robust numbers coming in from the labor market have also not helped, stoking fear that the central bank might infer it as a case for further policy tightening.

Treasury yields have remained high, with inflation resuming its climb. The fears of an economic slowdown have dampened investor mood, and markets have been in a sell-off mode, with their eyes set on the Fed’s moves. However, the minutes from the Fed September meeting released on Wednesday, Oct 11, have brought some respite.

The minutes show that the Fed officials are now taking cognizance of the growing uncertainty about the path the economy is moving toward, and intend to be far more cautious in their policy tightening decisions. They earmarked rising treasury yields as a market phenomenon that would address their policy-tightening needs. This has given market participants a reason to conclude that although interest rates are at the current high level of 5.25-5.50%, they will not be going up any soon. However, the market volatility will continue before a clear sight emerges of the economy getting out of the woods.

Defensive stocks remain in demand when markets are volatile because of their intrinsic nature. Even during the 2008 financial crisis, they had held the fort. Utility stocks are examples of such defensive instruments that protect investments when the goings are not good. The steady nature of the sector is ensured by the fact that demand for essential services is relatively unaffected by market volatility because of their non-discretionary nature. Whatever the state of the economy, a household or a business needs electricity, water, or gas, even if prices go up.

In addition, utilities are usually considered long-term buy-and-hold options as they regularly declare dividends, and dividend yields on utility stocks are usually higher than those paid by other equities. In this environment, utility stocks provide much-required stability and growth potential. Hence, astute investors should consider such stocks at present.

Our Choices

The stocks below flaunt a Zacks Rank #1 (Strong Buy) or Rank #2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here, V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.

Telefonica Brasil S.A. (VIV Quick QuoteVIV - Free Report) is a mobile telecommunications company from Brazil. Telefonica’s expected earnings growth rate for the next year is 17%. The Zacks Consensus Estimate for its current-year earnings has improved 7.8% over the past 60 days. VIV currently has a dividend yield of 2.74%. This Zacks Rank #2 company has a VGM Score of A.

Pampa Energia S.A. (PAM Quick QuotePAM - Free Report) is an integrated independent energy company from Argentina. Pampa’s expected earnings growth rate for the next year is 11.2%. The Zacks Consensus Estimate for its current-year earnings has improved 19.9% over the past 60 days. This Zacks Rank #2 company has a VGM Score of A.

Companhia Energeticade Minas Gerais (CIG Quick QuoteCIG - Free Report) engages in the generation, transmission, distribution and sale of hydroelectric, wind and solar energy as well as gas in Brazil. Companhia Energetica’s expected earnings growth rate for the current year is 22.2%. The Zacks Consensus Estimate for its current-year earnings has improved 51.7% over the past 60 days. CIG currently has a dividend yield of 7.8%. This Zacks Rank #2 company has a VGM Score of A.