Stocks fell much of last quarter, but investors found protection from some familiar friends.
Companies in the health care, utility and consumer-staples industries often hold up better in a down market because of their steadier profits. That’s why investors call them defensive stocks, and they made the biggest gains between April and June. The overall S&P 500 index slipped 0.4 percent last quarter, after being down as much as 4.6 percent in mid-June.
Consider cigarette-maker Lorillard, whose stock rose 14.6 percent last quarter. Even when the economy weakens — as it has since May — people still buy cigarettes. Lorillard’s annual profit slipped just 1.2 percent at the worst of the recession. Profits for health care companies and utilities are equally resilient, according to RBC Capital. When the country’s overall economic growth drops by 1 percentage point, earnings for the two industries slip between 0.4 percent and 0.7 percent. Compare that to an average 7.7 percent profit drop for raw-materials producers.
Consumer discretionary stocks, which include Nike, and other sellers of nonessential stuff, benefited from the 11 percent drop in oil prices through the quarter. Lower gasoline bills should leave more money for shoes and books.
Oil’s fall, though, hurt energy stocks. And the slowing U.S. economy, plus worries about the effect of new regulations for banks, made financial stocks the biggest losers of the quarter. The job market, home prices and retail sales all weakened in May.
The worst stock in the S&P 500 was Micron Technology, which dropped 34.8 percent. It was hurt by falling prices for the memory chips that it makes for electronics.
