Don't Rush Into This Defensive Sector

Editor's note: This market is still volatile. But if you're looking for protection right now, this "safe haven" sector could lead you astray. In this piece, Marc Chaikin – founder of our corporate affiliate Chaikin Analytics – reveals a group of defensive stocks that is failing dangerously today... and explains why now isn't the time to hide your head in the sand.

Folks, the financial news is full of negativity these days...

Most pundits are still calling for a recession or major wipeout. But the technical details behind the market today tell a different story. And we're already seeing the beginnings of the next bull market.

Does that mean everything will be smooth sailing from here? No way.

In fact, there's still a decent chance of an "earnings recession" ahead. And history suggests we should expect multiple pullbacks as the market's next bull phase plays out.

But that doesn't mean you should shift completely to defense.

One of the most classic defensive positions now earns a "bearish" rating from our system. Worse still, according to this tool, it's the second worst-rated market sector today.

So the pundits are full of uncertainty. And you might be confused about what to do with your money. But this signal is clear...

If you're investing in this defensive position right now, you're in for trouble.

Let me show you what I mean...

Folks, the defensive position I'm talking about is the utilities sector.

The utilities sector is about as boring as it gets. And because of that, many investors see it as a "safe haven" for their money.

Here's the important part for us...

The utilities sector has been underperforming the market so far in 2023. Take a look...

Since the start of the year, the Utilities Select Sector SPDR Fund (XLU) has lost nearly 9%. And the broad market S&P 500 Index has gained almost 3% over that span.

That's a major wipeout. And according to the Power Gauge, it's likely to get worse...

I created the Power Gauge system to bring high-level analysis to individual investors. Today, it's one of our most important tools at Chaikin Analytics. It combines 20 of the most important factors to an asset's performance and distills them into a simple rating: bullish, bearish, or neutral.

You see, XLU currently earns a "bearish" rating from the Power Gauge. And beyond that, zero of the 30 rated stocks in the exchange-traded fund are rated "bullish" or better.

That means the Power Gauge isn't optimistic on any of these 30 stocks within XLU.

That's as clear as it gets...

Defensive plays like utilities are the wrong place to be looking right now. And although the Power Gauge is "neutral" on the S&P 500 as a whole, it's finding plenty of opportunities...

Two sectors and five subsectors currently earn a "bullish" or better rating. And within the S&P 500, 82 stocks are rated as "bullish" or better right now.

Put simply, even if the market is volatile... we can find plenty of opportunities.

So with that in mind, let's do our jobs as investors. Let's go out and find the best opportunities, no matter what's happening in the overall market.

To do that, I'll use the Power Gauge. After all, it's the culmination of my life's work.

But whatever tool you use, just make sure it's not telling you to bury your head in the sand. Now, more than ever, that's exactly the wrong position to take in your investing approach.

Good investing,

Marc Chaikin                            

Editor's note: Marc called February's sell-off... AND predicted the recent run on the banks, months before it happened. Now, he says this banking crisis has completely changed the investing outlook for 2023. And he's calling on investors to take one important step today... because a lot of folks will be tempted into making dangerous moves with their money in the coming weeks.

Marc is sharing all the details in an online emergency briefing. Make sure you tune in on March 28 at 8 p.m., Eastern time... RSVP here to save your free spot.

Further Reading

If you're looking to hedge your portfolio today, two "risk off" assets are a much better option than utilities stocks. They failed last year – but now, they're back to protecting investors from volatility... Read more here.

"Last year's winners rarely keep winning," Brett Eversole writes. The sectors that performed best in 2022 have flipped to become the worst performers this year. That's why it's important to keep your eye on the trend... Learn more here.