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5 Stocks to Buy Amid Rising Trade Risks and Fed Rates

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The volatility induced in the financial markets in recent times is making investors jittery as they eagerly await an affirmative outcome from President Donald Trump and his Chinese counterpart’s meeting this week. Whatever the outcome of the G-20 summit, it could affect the already hostile Washington-Beijing relations.

In addition, a fourth Fed rate hike for this year is expected in December as well, which isn’t painting a hopeful picture for the financial markets. Given the state of affairs, it would be prudent to invest in defensive stocks that are less affected by macroeconomic issues and market volatility.

Trade War Scenario Likely to Persist

In an interview earlier this week, Trump had said that it’s highly unlikely he would accept Beijing’s request to hold off raising tariffs from 10% to 25% beginning next year. The U.S. tariffs on Chinese goods will increase to 25% from January 2019. Trump also said that in case the talks don’t go well, he could put tariffs on the remaining $267 billion of Chinese products at a rate of 10-25%.

Earlier this week, Trump suggested he might impose 10% tariff on laptops and iPhones imported from China. "I mean, I can make it 10 percent, and people could stand that very easily," the president told Wall Street Journal.

Given the hostile scenario, a positive outcome is unlikely. Therefore, market volatility could continue.

A Probable Fourth Fed Hike Could Slow Economy

Although the Federal Reserve didn’t raise rates in November, a December rate hike could be in the cards. Strong consumer spending, job gains and record-low unemployment rate are some of the factors that substantially contribute to the Fed’s possible decision to hike rates next month.

But a global slowdown, turbulent markets for the last two months and a huge sell-off last week have made the Fed uncertain about rising rates further in 2019. But a fourth rate hike this year could slow the economy down, as it could affect consumer spending, which accounts for two-thirds of the U.S. economy, to a large extent. In fact, U.S. economic growth could slow down from 2.9% estimated this year to 2.3% in 2019, added Morgan Stanley.

Why Invest in Defensive Stocks Now?

Defensive stocks are safe options when markets are volatile. At the same time, defensive stocks are not impulsive equities. They provide stable earnings and constant dividends regardless of the state of financial markets. The stability of these stocks comes from the fact that demand for their products does not lessen even in tight market conditions.

According to a Goldman Sachs report, it would be ideal for investors to buy stocks from defensive sectors as 2019 could be a rough year for stocks. The investment bank also raised the utilities sector to overweight.

5 Defensive Stocks to Buy

We have hand-picked a couple of consumer staples, health care and utility stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). Each of these stocks is projected to outperform their respective industries this year.

Middlesex Water Company (MSEX - Free Report) treats, stores and distributes water for residential, commercial, industrial and fire prevention purposes and carries a Zacks Rank #1. The company’s expected earnings growth rate for the current year is 42% compared with the Zacks Utility – Water Supply industry’s projected rise of 14.5%. The Zacks Consensus Estimate for the company’s current-year earnings rose 6.5% in the last 60 days.

Bristol-Myers Squibb Company BMY is a healthcare company that carries a Zacks Rank #1. The company’s expected earnings growth rate for the current year is 28.6% compared with the Zacks Large Cap Pharmaceuticals industry’s projected rise of 9.4%. The Zacks Consensus Estimate for the company’s current-year earnings rose 6.9% in the last two months.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Otter Tail Corporation’s (OTTR - Free Report) primary business is the production, transmission, distribution and sale of electric energy. The company carries a Zacks Rank #2. Otter Tail’s expected earnings growth rate for the current year is 10.2% compared with the Zacks Utility – Electric Power industry’s projected rise of 7.9%. The Zacks Consensus Estimate for the company’s current-year earnings rose 2.5% in the last 60 days.

The Chefs' Warehouse, Inc. (CHEF - Free Report) is a distributor of specialty food products in the United States and carries a Zacks Rank #2. The company’s expected earnings growth rate for the current year is 77.3% compared with the Zacks Food - Miscellaneous industry’s projected rise of 2.9%. The Zacks Consensus Estimate for the company’s current-year earnings hasn’t changed in the last two months.

United Natural Foods, Inc. (UNFI - Free Report) is the largest publicly traded wholesale distributor to the natural, organic and specialty industry in the United States and Canada and carries a Zacks Rank #2. The company’s expected earnings growth rate for the current year is 10.6% compared with the Zacks Food - Miscellaneous industry’s projected rise of 2.9%. The Zacks Consensus Estimate for the company’s current-year earnings rose 0.3% in the last 60 days.

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