Fears of a recession intensified further after data showed the economy contracted for a second straight quarter, making a strong case for defensive stocks for investors worried about slowing growth . GDP fell at an annualized rate of 0.9% in the second quarter after a 1.6% decline in the first three months of the year, hitting a widely accepted rule of thumb for a recession. Many on Wall Street believe it’s time to get defensive in the market in anticipation of corporate profits contracting. Defensive stocks tend to provide stable earnings and consistent dividends regardless of the state of the global stock market and economy. They are often well-established companies in sectors such as consumer staples, healthcare and utilities, such as Procter & Gamble, Johnson & Johnson and Coca-Cola. “To build defenses against a potential ‘downside’ scenario, in which weaker economic data leads to lower corporate earnings expectations and lower stocks, we believe investors should add exposure to income stocks from quality, the healthcare sector and resilient credit,” said Mark. Haefele, CIO of UBS Global Wealth Management. Stocks with defensive qualities were found in the portfolios of some of Wall Street’s top investors, including Warren Buffett, Leon Cooperman and David Tepper, as they play defense in a market with rising recession risks. The “Oracle of Omaha” has long had a love for defensive names like Coca-Cola, one of the biggest holdings in his portfolio for decades. Berkshire also has relatively small stakes in Procter & Gamble, Johnson & Johnson as of the end of March. Meanwhile, Chevron, a large holding in Berkshire’s portfolio at the end of the first quarter, pays a hefty 4.1% dividend. By comparison, the S&P 500 pays 1.7%, according to FactSet. Major pharmaceutical and insurance companies are also considered defensive stocks. Healthcare giant UnitedHealth was found in the portfolios of Third Point and Appaloosa in the first quarter. Leon Cooperman’s Omega Advisors had an investment in Cigna. Cooperman previously said he expects rising oil prices or aggressive Fed tightening to tip the US economy into recession next year, and that could mean a 40% drop for the S&P 500 from maximum to minimum. Precious metals such as gold and silver are also historically considered defensive assets as they tend to hold good value in market downturns. Greenlight Capital’s David Einhorn had significant holdings in the SPDR Gold Trust and the iShares Silver Trust ETF at the end of March. Commodities such as silver and gold are also considered hedges against rising prices.
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