As we navigate the tumultuous waters of a global trade war ignited by escalating tariffs from the Trump administration, the market is showing signs of distress. While the stock indices, including the S&P 500, Nasdaq, and Dow Jones, have collectively tumbled approximately 2% over the past week, a unique investment strategy is gaining attention: low volatility stocks. In the midst of panic and uncertainty, these stocks are emerging as potential anchors for investors seeking safety against economic turmoil.
The announcement of tariffs against key trading partners like Canada and Mexico has sent shockwaves through various sectors, causing ripples of retaliatory policies and an atmosphere laden with economic anxiety. Although it’s easy to succumb to the despair borne from these developments, certain stocks exist in an oasis of stability where prudent investors could potentially find refuge.
Among the stocks poised to endure and possibly thrive during this period of upheaval are established names like Apple and AbbVie. An analysis from Evercore ISI highlights the resilience of low volatility stocks during previous trade tensions, particularly during the tumultuous backdrop of 2018. The implication is clear: in dire times, defensive strategies can often yield longer-lasting benefits than chasing high-growth stocks, which are far more susceptible to market whims.
Julian Emanuel, a senior managing director at Evercore, argues that “defense remains the best offense.” His insights point toward a paradigm shift where traditional growth stocks may falter under pressure, while health-care and technology stocks fortify investor portfolios. It’s a strategic pivot that centers on resilience and predictability, rather than dazzling returns.
The health-care sector, specifically, offers a compelling narrative in the context of this trade war. Evercore has identified a number of companies within this space, including AbbVie, Humana, and DaVita, that could serve as effective hedges against the economic fallout from trade disputes. These stocks have historically exhibited a stability that remains appealing, especially as the broader market grapples with uncertainties.
For instance, AbbVie has been on a robust trajectory, reflected in a 17% increase this year, largely driven by its recent performance and ventures into promising sectors such as obesity treatments. Such companies are often viewed as safe bets during economic slowdowns due to their essential service-based nature, making them less vulnerable to macroeconomic shifts.
Additionally, technology stocks are not always the high-risk assets they are perceived to be. Apple, despite witnessing a 4.7% drop in its shares this year, has become a cornerstone of safety for savvy investors. Renowned for its consistent innovation, the tech giant is anticipated to benefit from emerging trends in artificial intelligence, potentially kickstarting a new cycle of upgrades for its flagship products such as the iPhone.
The interplay between technology and consumer necessity cannot be understated in a trade war context. As the economy falters, companies like Apple are likely to remain in demand, providing a reliable yield despite the enveloping chaos in international trade.
In addition to health and tech stocks, defense contractors like Booz Allen Hamilton and Lockheed Martin present yet another layer of security in turbulent times. Although these stocks have faced short-term declines, with Booz Allen down nearly 16% this year, they exhibit a non-correlation to civilian market performance. This is crucial, as government budgets and defense spending are often more insulated from economic downturns, solidifying these stocks as a reliable investment strategy.
The unpredictability of global relations and defense needs means that these contractors could benefit from increased activity, making them a less risky proposition compared to their market-sensitive counterparts.
Low volatility stocks, particularly in health care, technology, and defense, serve as a rational investment approach amidst the pandemonium of trade wars. In a world where market conditions can shift with the news cycle, seeking refuge in these resilient stocks may well be the strategy that protects one’s financial interests in the long run.