Trade War Fallout? ‘Boring’ Stocks Are Making New Highs

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Trade War Fallout? Boring Stocks Are Making New Highs

President Trump’s trade war with China has tech investors running for cover as some “boring” stocks keep climbing.

Insurers, food companies and utilities aren’t glamorous, but several names in each group hit new 52-week highs yesterday. Other un-flashy sectors like defense contractors and trash haulers have also rallied.

Property and casualty stocks including Progressive (PGR), Travelers (TRV) and
Chubb (CB) stand out in particular. While no single catalyst explains the move, most companies in the group have little exposure to China and reported strong quarterly numbers last earnings season. A combination of higher rates and wider profit margins drove their results.

Progressive (PGR) chart with select moving averages.

Other members of this “boring” group to hit new highs in the session include
Marsh & McLellan (MMC), Cincinnati Financial (CINF) and Loews (L).

There were utilities like Southern (SO) and NextEra Energy (NEE), which gain at times of anxiety. The two trash haulers in the S&P 500, Waste Management (WM) and Republic Services (RSG), also hit new highs. Again, not much China exposure with those.

Defense Stocks Shooting Higher

Another interesting trends has been a rebound in military firms like Harris (HRS), L3 Technologies (LLL) and Northrup Grumman (NOC). HRS and LLL gapped higher on strong results at the start of the month and haven’t looked back since. NOC had mixed results but soon rallied.

The move in defense contractors stands out for two potential reasons. First, they’ve been one of the stronger corners of the industrial sector for years, but lagged badly in 2018. This year they’re outperforming again. Are longer-term buyers returning? Second, the gains come as President Trump increases pressure on Iran.

Northrup Grumman (NOC), monthly chart, with relative strength vs. S&P 500.

Other “boring but bullish” stocks include food companies McDonald’s (MCD), Hershey (HSY) and Darden Restaurants (DRI), along with big-box retailer Costco (COST). All told, 41 members of the S&P 500 hit new highs yesterday. Less than one-quarter of them were listed on the Nasdaq. Not a single one was a mainstream technology stock, aside from takeover target Red Hat (RHT).

In conclusion, the trade war with China shows little sign of ending soon. But some investors seem to be taking refuge other parts of the market shielded from the dispute. Hopefully this post helped you learn some of them, even if they’re not hugely exciting companies.

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