Is it time to get defensive?
That's been the question of the week after a volatile bout for U.S. markets, which saw the Dow Jones Industrial Average have its biggest-ever one-day point loss Thursday and biggest one-day point gain Monday.
The swings continued Tuesday, with the Dow ultimately closing down nearly 3% after an emergency interest rate cut by the Federal Reserve, an attempt by the central bank to get ahead of economic damage wrought by the global coronavirus outbreak. The Dow jumped 500 points in early Wednesday trading after a successful Super Tuesday for Democratic presidential candidate former Vice President Joe Biden.
With the Fed in emergency mode — and the yield on the U.S. 10-year Treasury falling below 1% to its lowest level in history — buyers piled into defensive plays like gold and real estate investment trusts. While the Real Estate Select Sector SPDR Fund (XLRE) closed down nearly 1%, it was best-performing SPDR sector ETF on Tuesday and rose nearly 3% Wednesday morning.
"I would not be chasing defensive sectors right here," Mark Tepper, president and CEO of Strategic Wealth Partners, told CNBC's "Trading Nation" on Tuesday, adding that, in his view, their "valuations are ridiculous."
"You're paying a lot for little to no growth," Tepper said. "In my opinion, if you want to be defensive, you can pick up yield with a much more attractive valuation elsewhere. So, health care would be a good example."
Overall, his advice to clients was to "be patient" and "calm down."
"There's a lot of fear in the market right now, so, just stay calm," he said. "We've been coming up with our shopping list of all the stocks that we love. Maybe they were too expensive for us to get behind a month ago, and we're just waiting for them to fall into our laps. And once the price gets to a level that's reasonable, a price that we feel makes the valuation attractive, we're pulling the trigger."
Matt Maley, chief market strategist at Miller Tabak, was watching the utilities sector — but not in a particularly favorable light.
"When the market really starts to get hit hard, those safe haven plays ... get thrown out as well," Maley said in the same "Trading Nation" interview. "They're not always as safe as a lot of people think they are, especially when the market's really under a lot of turmoil."
"One thing that I'm looking at in the XLU Utility ETF [is] its 50-week moving average" around $62.50, Maley said. The XLU was up over 2% early Wednesday, above the $66 level.
"It got right down to that last week and bounced," he said of the 50-week moving average. "It got down to that [Monday] and bounced. If it breaks below that level, you're going to see the kind of sell-off in that group that we've seen in a lot of the high-flying groups."
Instead, Maley suggested buying gold, which has managed to maintain another key level the strategist has been monitoring.
"Gold had that big breakout earlier this year above 1,550. It did pull back last year off an overbought condition, but it keeps holding that 1,550 level," he said, referencing its chart. Gold was flat early Wednesday, just below $1,643.
"As long as it stays above that level, I'd rather be in the yellow metal than some of the other defensive stocks right now," Maley said.
For those who'd prefer picking stocks, he offered up an alternative strategy.
"If you have your favorite names and you want to put a certain amount of money into it, put in limit orders — one at one price, one at a lower price below that and then at a lower price below that — so if you get a big whoosh lower [and] you won't have time to react that quickly, you'll be able to buy them automatically and then when the market bounces back you'll have a nice position in your favorite names," Maley said.
Disclosure: Strategic Wealth Partners owns shares of Bristol-Myers Squibb and CVS.