The market has been volatile over the last three months especially when the S&P 500 finished 2018 approximately 20 percent lower from its record high in September. The bearish sequence that started in early October sent the volatility index (VIX) into panic territory, meaning above 22.75 points, after months into soft territory, meaning below 15.95 points.
Since then, the S&P 500 has recovered about half of its loss as it stands 11.89 percent below its latest record high, the same elsewhere with minus 10.69 percent for the DJIA and almost minus 20 percent for its German counterpart the DAX 30.
Besides, Switzerland-based and world’s largest wealth manager UBS believes investors should keep their money in the stock market. “You have to stay invested, whatever your risk tolerance can bear,” Mark Haefele, global chief investment officer at UBS Global Wealth Management, told clients at the UBS Wealth Insights forum in Singapore.
In the meantime, an anonymous trader sold 19,000 put options on the S&P 500 index at strike price 2,100 and at expiration date December 18, 2020, whether it is a bullish bet or some hedging for some previous existing investing is not known however.
In 2000, Berkshire Hathaway (BRK) entered into a new industry when it invested $1.7 billion to acquire MidAmerican Energy (MEC), an electric utility based in Iowa with operations in the United States and the United Kingdom. “Though there are many regulatory constraints in the utility industry, it’s possible that we will make additional commitments in the field. If we do, the amounts involved could be large,” said at the time BRK’s CEO and Omaha-based legendary investor Warren Buffett.
Mostly considered a low risk investment though capital-intensive, the utility sector encompasses stocks from electric, water, gas and power providers. Despite some continuous uncertainty over the cost of infrastructure and raw materials, utility stocks are widely seen as reliable as bonds but more rewarding since they pay a dividend yield of 3.5 percent, clearly above the yield of the S&P 500 at 2.11 percent and the U.S. 10-year Treasury note at 2.7 percent as of December 28, 2018.
Since the market’s recent entry into bear territory, consulting firm Cyceon noticed that the utility sector has shown more resilience so far than most other sectors including health care, financials and industrials.
Indeed, utility companies like Connecticut Water Service (CTWS), Atmos Energy (ATO), Northwest Natural Gas (NWN) are respectively down 4.05 percent, 7.46 percent and 12.86 percent from their historical highs*. In the meantime, industrial company ABM Industries Inc. (ABM), financial company Eaton Vance Corp. (EV) and health care distributor Cardinal Health (CAH) are respectively down 30.92 percent, 40.38 percent and 50.65 percent from their historical highs.
Multi-utilities companies however might be a bit more scattered than their specialized counterparts, for instance MDU Resources (MDU) is 34.20 percent away from its top, contrasting with Vectren Corp. (VVC) which is just 0.18% away. All the companies cited above belong either to the dividend aristocrats category or to the dividend champions category meaning that they are all longstanding companies with stable dividend distribution and growth policy.
* Most of historical highs here have been considered since 2007.
The fact that there could be bigger trouble ahead for developed economies is currently the main hypothesis about next year 2019 according to a growing number of market analysts.
Weaker trends here may indicate better trends over there, underlined Morgan Stanley (MS) whose research team emphasized in its Global Strategy Outlook report for 2019 that after a rough 2018 for stocks in Emerging Markets (EM), a turnaround could be just about to start.
As a result, MS has upgraded EM stocks from “underweight” to “overweight” for 2019, while it has downgraded US equities to “underweight”. Thanks to a rise in bond yields and very good figures in economic growth, US stock market accumulated much foreign capital over the last year, leading DJIA and S&P500 to unprecedented tops.
Since then however, mostly the rate hikes policy of the Federal Reserve (Fed) and the ongoing uncertainty around President Donald Trump’s trade feud with China and the European Union (EU) have led global markets into correction territory.
In the meantime, EM markets have gone into a contrarian move against developed markets with Chinese index going south, if not halving, since 2014, and political tensions drove Turkish and Argentinean currencies into hot waters. Now that the MSCI Emerging Markets Index has dropped by 16 percent YTD, MS expects it to rise 8 percent by December 2019, twice as much as the 4 percent forecast for both the S&P500 and MSCI Europe Index.
“We think the bear market is mostly complete for EM. (…) We are taking larger relative positions and adding to EM,” reads the Morgan Stanley report, putting its “overweight” focus on “value stocks” from Brazil, India, Indonesia, Peru, Poland and Thailand.