U.S. bourses have suffered the worst fall in six years, triggering a worldwide bloodbath of stocks. It has severely affected investors who had vouched for an extended period of market calm. The major cause of the selling is concerns over inflation and rising interest rates that pushed bond yields higher at the expense of stocks.
With the markets witnessing a healthy pullback after a strong run, investing in stocks that provide excellent risk-adjusted returns seems judicious.
Steepest Sell-Off Since 2011
The Dow has tanked 1,175 points, or 4.6%, to 24,345.75 at the closing bell on Feb 5 — marking the steepest one-day drop since Aug 10, 2011. All the 30 components of the blue-chip index ended in the red.
The S&P 500 shed 113.19 points, or 4.1%, to 2,648.94. The large-cap index’s percentage drop was the largest since Aug 18, 2011. It was also almost close to a 5% pullback. The index had somehow managed to complete 406 sessions without such a decline, registering its longest period without a 5% pullback in 20 years. All the S&P 500 sectors were down as well.
The financial sector declined the maximum at 5%. Other sectors that fell more than 4% were healthcare, industrials, energy, telecommunications and information technology. They were followed by consumer cyclicals and utilities, which lost 3.3% and 1.7%, respectively.
Such a sell-off followed last week’s worst weekly decline for the Dow and the S&P 500 in more than two years. The indices turned negative for the year, while the Nasdaq managed to retain a gain of 0.9%. Nevertheless, the tech-laden index dropped 273.42 points, or 3.8%, to end yesterday’s session at 6,967.53.
The day’s broad-based weakness drove the Cboe Volatility Index (VIX), Wall Street’s so-called fear gauge, 104% to 35.02, its highest since August 2015, per FactSet. The VIX shows expectations of volatility in the broader market, and trades inversely to the major benchmarks roughly 80% of the time.
Robust Jobs Data — Major Reason for the Tumble
Everyone one was quick to name the culprit and it was the jobs data. Stronger-than-expected job addition along with fastest wage growth in more than eight years sparked fears of inflation and bolstered expectations that the Fed could take a more aggressive stance in hiking rates than previously expected.
In fact, the U.S. 10-year bond yields touched a four-year high as investors continue to take money away from the equity market and flee into treasury for safety. The 10-year treasury note at one point jumped as high as 2.883%, but, ended the day at 2.72%.
Coming to the jobs report, the labor market has come a long way since the Great Recession, with broad-based job gains recorded in January. Non-farm payrolls climbed 200,000 jobs last month after rising 160,000 last December, per the Labor Department. In fact, the economy added jobs for 88 successive months, while unemployment rate remained at a 17-year low of 4.1%.
Average hourly wages increased 9 cents, or 0.3%, to $26.74. This helped the average year-on-year hourly earnings to rise to 2.9%, the highest since June 2009. Wages grew at the fastest pace since the end of the last decade on a tighter labor market, tax cut policy and a rise in the minimum wage threshold in several states.
Minimum wage has been raised in 18 states in January, which had a positive impact on 4.5 million workers, per the Economic Policy Institute.
Buy These 5 Ultra-Safe Stocks Now
Given the aforesaid factors, it seems like Wall Street is facing a bloodbath. After all, the stock market’s tried-and-tested policy of buying the dip that involves scooping up companies at attractive valuations following sell-offs has failed to boost equities this time around. Moreover, market pundits have been predicting a correction for quite some time.
The stock market has remained calmed for a pretty long time, courtesy of a sturdy economy and low interest rates. But, as evident, such things don’t last long.
Taking this into consideration mind, let’s take a look at which stocks are worth a bet at the moment. Investors should build a strategy on low-risk assets and a combination of parameters that lead to better returns. The best way to go about doing this is by creating a portfolio of low-beta stocks, which are inherently less volatile than the markets they trade in. In this case, a low beta ranges from 0 to 1.
These stocks are also dividend payers which boast immense financial strength and are immune to market vagaries. Such stocks reflect solid financial structure, healthy underlying fundamentals and better quality business. Further, they boast a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Brinker International, Inc. (NYSE:EAT) owns, develops, operates, and franchises casual dining restaurants worldwide. The company has a Zacks Rank #2 and a beta of 0.12. The company has a dividend yield of 4.2%, while its five-year average dividend yield is 13.5%.
The Zacks Consensus Estimate for its current-year earnings rose 6.6% in the last 60 days. The company is expected to return 5.9% this year, higher than the industry’s estimated return of 0.4%.
Kimberly-Clark Corp (NYSE:KMB) manufactures and markets personal care, consumer tissue, and professional products worldwide. The stock has a Zacks Rank #2 and a beta of 0.66. The company has a dividend yield of 3.3%, while its five-year average dividend yield is 4.4%.
The Zacks Consensus Estimate for its current-year earnings rose 7.4% in the last 60 days. The company is expected to return 12% this year, more than the industry’s expected return of 10%.
Northwest Bancshares, Inc. (NASDAQ:NWBI) operates as a bank holding company for Northwest Savings Bank that offers various personal and business banking solutions in the United States. Northwest Bancshares has a Zacks Rank #2 and a beta of 0.64. The stock has a dividend yield of 4%, while its five-year average dividend yield is 6.4%.
The Zacks Consensus Estimate for its current-year earnings rose 13.2% in the last 60 days. The company is expected to return 22.6% this year, more than the industry’s estimated return of 18.8%.
Macy’s Inc (NYSE:M) — a Zacks Rank #2 company — together with its subsidiaries, operates stores, websites and mobile applications. Its stores and websites sell a range of merchandise, including apparel and accessories for men, women, and children.
Macy’s has a beta of 0.98. The company has a dividend yield of 6.1%, while its five-year average dividend yield is 14.5%. The Zacks Consensus Estimate for its current-year earnings climbed 6.2% in the last 60 days. The company is expected to return 15.8% this year, in contrast to the industry’s projected decline of 4.1%.
Occidental Petroleum Corporation (NYSE:OXY) engages in the acquisition, exploration, and development of oil and gas properties in the United States and internationally. The company has a Zacks Rank #1 and a beta of 0.53. The company has a dividend yield of 4.2%, while its five-year average dividend yield is 4%.
The Zacks Consensus Estimate for its current-year earnings rose 17.1% in the last 60 days. The company is expected to return 188.1% this year, higher than the industry’s projected return of 34%.
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