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Posted by on Apr 30, 2014 in Laif Meidell

Investors still prefer utility stocks

Investors still prefer utility stocks

By Laif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH)

On Monday morning, the bears launched an all-out selling assault on the stock market, giving the impression that last week’s selling would follow through into the present week, but about halfway through the day, the bulls stepped in, pushing prices higher, with the market closing in positive territory on the day.

A similar scenario played out again early Tuesday morning with a similar result: the bulls once again showed their conviction to buy the dips, with the stock market indices closing higher on the day.

However, investors who have bought the dips recently, as well as others, have still preferred to put their money into utility stocks as indicated by the Amex Utility index being up 1.98 percent over the past five trading days and 10.28 percent higher over the past three month.

Companies that sell consumer staples such as food, beverages, tobacco and household items are also taking the lead lately. The Amex Consumer staples index is the second strongest performing sector over the past week, gaining 1.02 percent and holding up well this year, rising 8.02 percent the past three months. For comparison purposes, the Standard & Poor’s 500 index is down 0.06 percent over the past five trading days but is higher by 5.37 percent over the past three months.

Most stocks investors are taught that stocks go up in price based on expected future earnings. In other words, stocks go up in price because investors expect that a company will sell more goods and services than it does today.

So, does the recent strength in utilities and consumer staples mean that Americans are becoming insomniacs (leaving the lights on all night) and on an unprecedented eating binge? Maybe someone’s been following me around, but otherwise, I doubt it. Instead, money seems to be shifting to those companies whose earnings are seen as more stable and constant during bad economic times.

So, if the economy is getting stronger, why aren’t investors getting in front of the trend, as they usually do, and buying companies who should benefit from an improving economy? That’s a question we’ll figure out in the weeks and months ahead.

This commentary originally published in the Reno Gazette-Journal.
Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate.

The AlphaBaskets blog provides frequent market insight and commentary by AdvisorShares Investments, LLC, created by AdvisorShares and other leading active managers.  AdvisorShares Investments is an SEC-registered investment adviser and the investment adviser to the AdvisorShares actively managed ETFs. The views expressed on AlphaBaskets should not be taken as investment advice or a recommendation for any of the actively managed ETFs advised by AdvisorShares.