A funny thing happened while Wall Street was chasing smoke signals from China: Slower, "boring" and more defensive stocks took over from Big Tech. Investors aren't fleeing the market. They're just rolling profit from high-growth names back to economic bedrock.
This is a natural part of the long-term investment cycle. People make money in the most dynamic corners of the market, inflating the associated valuations in the process. Then, when the growth winds shift a little, people rotate some of their gains into more reliable themes that pay dividends year after year. That way, when the rally pauses, they're covered.
We've seen two dozen "mini-corrections" like the one that just hit the market over the past decade. Most of these dips have been in the 5% range, but what's striking is that they've struck roughly once every five months, which means the next one was statistically due. (Yes, it's been five months since the last downswing bottomed out back in December.)
The remarkable thing about those occasional reversals is that most of them are triggered by events that feel urgent at the time but ultimately become irrelevant to the market's real trajectory. In previous years, a 5% dip could have been caused by trouble in Greece or a scare on Ebola or the Zika virus. There might be an earthquake in Japan or a sudden decline in oil prices. The Fed might frighten people and make the market do the work of cooling the economy without forcing central bankers to act.
This one feels like one of those quickly forgotten sell triggers that we'll forget about two months from now. At least, that's what the market is telling us. People aren't pulling away from stocks across the board. They're lightening some positions and rotating that profit elsewhere. Our REIT recommendations are now up 1% this week while the S&P 500 is down 1%. If you're looking for leadership, that's the place to be for the time being.
"High-beta" stocks, on the other hand, are still down 5% over the past month. These are the most volatile upside names as well as those that drop fastest when the mood turns. There's a lot of Technology there.
And here's the thing: That rotation has been going on behind the scenes for months now. Real Estate stocks are up 20% YTD. The S&P 500 as a whole is only up 13%. Granted, these stocks can be slower when the market is sizzling, but they're steadier in moments of uncertainty. That's why we continue to cover the REITs when our Technology stocks are flying.
We're not counting Technology out, of course. But if you're looking for shelter, now's the time to selectively pick up a little Real Estate. The sector as a whole only yields 3% a year and carries a shocking multiple of 42X earnings. A glance at our list reveals better income at a substantial discount. And if there's nothing that interests you, we have more names in the pipeline.