Playing Defense Among U.S. Stocks Seen Fading: Chart of the Day

Investors may be moving away from shares of U.S. companies least affected by economic growth in favor of those that benefit more from expansion, according to Russ Koesterich, BlackRock Inc.’s chief investment strategist.

As the CHART OF THE DAY shows, health care is the only one of four so-called defensive industry groups that’s ahead of the Standard & Poor’s 500 Index by at least 1 percentage point this quarter. The four were the only ones to advance in last year’s second quarter among the index’s 10 main industry categories.

Shares of telephone companies lost almost all of their second-quarter lead over the index yesterday. Makers of food, beverages, household products and other consumer staples, along with utilities, have failed to keep pace.

“The recent underperformance of some of the defensive areas of the market makes sense,” Koesterich wrote two days ago in a report. He cited a swing in valuations of consumer staples, health-care and utility stocks since 2009 that has made these groups more costly than the S&P 500 on average.

Utility shares in particular are “quite overpriced” and poised to decline further, the New York-based strategist wrote. The S&P 500 Utilities Index’s value at the end of April was the highest relative to earnings since December 2007, according to data compiled by Bloomberg. This month, the index has dropped 4 percent.

Anyone looking for cheap stocks ought to focus on energy and technology, Koesterich wrote. The S&P 500 indexes for the so-called cyclical industries have lower price-earnings ratios than the broader gauge, data compiled by Bloomberg showed.

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