Folks, the market has changed a lot since the end of 2022…
Remember, the broad market S&P 500 Index lost around 20% last year. And the tech-heavy Nasdaq Composite Index crashed more than 30%.
But now, the tides are turning…
The S&P 500 and the Nasdaq are up roughly 6% and 13%, respectively this year. And regular Chaikin PowerFeed readers know I have high expectations for the rest of 2023.
Despite that, many investors are still seeking shelter from the storm. They haven’t forgotten the staggering losses and financial hardships. And they think the next storm is approaching.
Now, don’t get me wrong…
I still expect to see a lot of volatility this year. In fact, history shows that the market is likely to endure more pullbacks on the way to higher levels in the coming months.
So I understand the urge to take shelter. But there’s a big problem with that right now…
You see, investors tend to use two market sectors in particular as a volatility shield. And today, these sectors both earn a “bearish” rating from the Power Gauge.
That means investors looking to protect themselves could be making a huge mistake. Folks who turn to these sectors could wind up with even more losses in the weeks ahead.
But fortunately, investors can avoid falling into this trap…
Now, if you’re reading this essay, you likely know that the Power Gauge is our stock-rating system. It’s based on my many decades of market experience with institutional insiders.
The Power Gauge starts with 20 key factors that these Wall Street titans use to find winning investments. Then, it bundles these factors into a quantitative system for investors.
That might sound like a lot – because, well, it is. Identifying the best proprietary weightings behind each factor took years of fine-tuning. But now, it’s helping everyday folks succeed.
Fortunately, interpreting the system is easy…
Each of these 20 factors receives a rating that ranges from “bearish” to “bullish.” And then, every stock receives a distinct overall grade that also ranges from “bearish” to “bullish.”
So at a glance, you can see the rating that each stock has earned from the Power Gauge.
With those ratings, we can also analyze many exchange-traded funds (“ETFs”). Among other things, these ETFs cover market sectors like financials, health care, and real estate.
Knowing all of that, we can get back to the topic at hand…
You see, investors consider two sectors in particular – consumer staples and utilities – to be “defensive plays.” Folks often turn to these sectors as protection during volatile times.
But today, the Power Gauge is steering us away from consumer staples and utilities. The main tracking ETFs for these sectors rank as “bearish” and “very bearish,” respectively.
That means investors who turn to these sectors could be making a costly mistake.
My point is simple…
You don’t want to focus your attention on these classic defensive plays right now. In fact, according to the Power Gauge, almost any other sector would be a better bet.
Despite that, I know countless investors will cling to these two “bearish” investments much longer than they should. And in turn, they’ll likely suffer further declines from here.
Avoid that mistake.
Instead, do what I do and listen to the Power Gauge. When it says consumer staples and utilities are both “bearish” or worse, I pay attention.
And you should, too.
Good investing,
Marc Chaikin
