Home/Blog/Trading Ideas/Amid Market Slump, Boring Might Be Back

Amid Market Slump, Boring Might Be Back

18 April 2013 in Trading Ideas

Put those predictions of Dow 20,000 on hold for the moment – the bear may no longer hibernating.

After pushing past pre-financial crisis highs set nearly six years ago, stocks have returned to looking mortal again. Just like that, the S&P 500 slipped nearly 3% in the past week, as of Wednesday’s close.

And look at Apple – the former “can’t-miss” darling of investors that saw its shares rise nearly ten-fold in less than four years. Now, the stock is in full retreat, dropping below $400 for the first time since late 2011, having slid nearly 25% already in 2013.

What’s more – the jittery nature of investors is evidenced by a rising volatility index. On Wednesday, the VIX once again jumped over its 200-day moving average for the second time in three sessions.

In addition, for the first time since late February, the Dow Jones Industrial Average put together three triple-digit moves in a row.

These kind of market swings can understandably make equity investors a little queasy about the future, especially when many analysts are pointing to the uneven earnings performances disclosed this week by blue-chip companies.

What’s an investor to do? For many, this may signal a time to get defensive – or to get more defensive. That can mean broadening your portfolio to include sectors that are traditionally less impacted by economic swings. We’re talking healthcare, utilities and consumer-staples stocks, which, coincidentally have been the strongest sectors in 2013.1

Stable Earnings MotifAnother option is to zero in on companies that have shown a tendency to put up stable profit performances quarter after quarter – regardless of milder economic swings. One alternative for that mindset is the Stable Earnings motif, a portfolio of 20 stocks of companies that have shown the ability to grow their annual profit by at least 3% over the past five years – and with small earnings variability ratios.

The motif has gained 7.8% so far in 2013, and is up 15.1% in the past 12 months.

In times of rising volatility, the opportunity to make profitable investments is never boring.

1Jonathan Cheng, “Dow Finishes With Triple-Digit Drop,” WSJ.com, April 17, 2013.

*