Defensive shares fight back in choppy trading

Dow Jones: 12,695.92 (+65.89 ) SP 500: 1,348.65 (+6.57) Nasdaq: 2,863.04 (+17.98)DEFENSIVE SHARES led a rebound in US stocks as investors weighed mixed economic signals and recent volatility in commodities in search of direction.

The Dow industrials fell nearly 100 points in the morning but recovered later after a lacklustre auction of 30-year US bonds and headlines suggesting negotiations to raise the US debt ceiling had intensified.

The strong performance by defensive shares, such as health care and consumer staples, suggested investors were still attracted to stocks while other asset classes made them more nervous.

“Fixed income investments don’t seem very attractive at the current yield. There’s some concern about commodities. The volatility has scared a lot of people away, so I think a lot of investors are sitting back and saying, ‘Where can I put my money?’ and the stock market is that,” said Channing Smith, co-manager of the Capital Advisors Growth Fund in Tulsa, Oklahoma.

The Dow Jones industrial average was up 65.89 points, at 12,695.92. The Standard Poor’s 500 Index was up 6.57 points, at 1,348.65. The Nasdaq Composite Index was up 17.98 points, at 2,863.04.

Bond yields have been declining, making them less attractive compared with stocks, particularly those that pay dividends such as utilities. The SP utility index rose 0.9 per cent and has gained 5.8 per cent since April 8th when the recent decline in bond yields began.

Commodities have been under pressure in recent sessions, although oil ended the day higher.

Defensive stocks typically have more predictable revenues, which makes them attractive during volatile markets.

Shares of Merck rose 1.6 per cent to $37.20, while Tyson Foods advanced 4.6 per cent to $18.84.

The market ended down on Wednesday after another sell-off in commodities.

Financial shares fell after Rochdale Securities banking analyst Dick Bove put a “sell” rating on Goldman Sachs and reduced the price target on the stock to $120 from $163, citing litigation worries.

Goldman shares slumped 3.5 per cent to $142.75 and volume topped the 50-day moving average. – ( Reuters)