Markets are so far having one of their worst years in history as investors are whipsawed by rising inflation, tighter monetary policy from the Federal Reserve and Russia’s war against Ukraine, but despite the ongoing volatility, Wall Street analysts see opportunities and recommend a basket of defensive and stable stocks.
With markets in turmoil amid a myriad of concerns, the benchmark S&P 500 index has fallen 18% this year as investors dump risky assets and search for pockets of safety, with tech stocks especially hard-hit.
Despite the uncertainty, experts like several stocks that have been boosted by solid first quarter earnings results: Analysts at MoffetNathanson upgraded video-game company Electronic Arts to a buy rating on Wednesday, arguing that it is set up to “weather continued market volatility” thanks to a dominant market position.
Piper Sandler analysts similarly upgraded fast-food chain McDonald’s on the basis that it is well-positioned—in large part thanks to the company’s “size and scale”—to navigate “choppy consumer sentiment.”
Investors should turn to companies with strong pricing power and solid performance over time, Bernstein echoed in a recent note, highlighting opportunities in the healthcare, financials and consumer sectors with stock picks including UnitedHealth, Walmart, Kroger and Fedex.
Strategists at Goldman Sachs, meanwhile, recommend stocks with stable growth and low volatility: Those include discount retailer Dollar General and credit card company Visa, both of which are beating the market, as well pizza chain Domino’s and pharmaceutical company Johnson & Johnson.
Some firms such as Bank of America point to high-dividend yield stocks that will continue to payout even if markets remain volatile, while Morgan Stanley advises investors to adopt a “defensive bias” overweight in health care, utilities and real estate stocks.
“We expect equity volatility to remain elevated over the next 12 months—one of the hallmarks of this cycle is likely to be elevated economic and earnings uncertainty,” Morgan Stanley’s head of U.S. equity strategy, Mike Wilson, said in a recent note. “Add in the elevated geopolitical uncertainty that has arisen over the past several months amid the Russia/Ukraine conflict and the table is set for volatility to persist.”
Stocks have fallen for the last five weeks in a row amid growing concerns about surging inflation and a slowdown in economic growth, with the Federal Reserve scrambling to raise interest rates. Tech shares have led the wider market selloff so far this year, as nervous investors continue to dump riskier growth stocks and turn to safe-haven assets. The tech-heavy Nasdaq Composite is down 28% so far in 2022.