Wall Street is off to a disastrous start in the second quarter. Major bourses tumbled into correction for the second time this year and closed below key technical levels. Elevated trade tensions between the United States and China along with weakness in large-cap tech stocks are cited to be the reasons for the free fall. The prospect of rising interest rates and lofty valuations are expected to trigger another stock market correction in the near term.
Given the turmoil, investing in defensive companies seems prudent. Such stocks provide risk-adjusted returns, consistent dividend and steady earnings growth regardless of the state of the equity market.
How Did the Benchmarks Perform?
The S&P 500 finished 2.2% lower at 2,581.88 on Apr 2, down 10.1% from its record high in Jan 26. The broader index closed below its 200-day moving average for the first time since the U.K.’s vote for Brexit in June 2016. The Dow Jones also closed below the aforesaid technical level, indicating further downtrend in the near future.
Unlike the S&P 500 and the Dow Jones, the Nasdaq somehow managed to avoid a correction but it did lose more than 10% from its record high attained in March. This leaves all the three major indices in negative territory for the year, while the CNNMoney’s Fear & Greed Index slipped further into “extreme fear” territory.
Global Trade War
Selling in stocks intensified after China decided to impose tariffs on about 130 U.S. goods, including a 25% charge on U.S. pork and 15% on fruits. The world’s second-largest economy retaliated against Trump’s plan to slap tariffs on Chinese steel and aluminum shipments.
All these have not only weighed on U.S. meat producers as well as industrial stocks, investors panicked as a full-fledged trade war might deal a heavy blow to economies, resulting in widespread unemployment. It may also dent first-quarter corporate earnings results slated to release this month.
