By Jeff Reeves, MarketWatch
It has admittedly been an exercise in futility to call a top in technology stocks.
After all, long-term performance numbers for tech stocks remain extraordinary. And as the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.72% butts up against new highs, there isn’t a lot of reason for panic.
Still, some cracks have started to emerge in Big Tech in recent weeks.
Soon after Facebook’s /zigman2/quotes/205064656/composite FB -0.67% ugly earnings report, investors pulled roughly $2.4 billion out of the popular Nasdaq-100 index fund, the Invesco QQQ Trust /zigman2/quotes/208575548/composite QQQ +1.35% . That figure is three times the amount lost by any other equity ETF, according to reports. “Of the 51 tech sector ETFs tracked by XTF.com, only two had significant positive flows” in the week after the report, CNBC noted at the time .
In fact, the data show that many investors are increasingly looking at defensive sectors thanks to a growing “risk off” mentality.
Take dividend stocks. The fundamentally defensive nature of these stocks, particularly those with sustainable and growing payouts, has made them incredibly attractive amid the volatility in tech. Consider that three of the largest dividend funds — iShares Core Dividend Growth ETF /zigman2/quotes/209953705/composite DGRO +0.56% , the Schwab U.S. Dividend Equity ETF /zigman2/quotes/209415846/composite SCHD +0.42% and Vanguard Dividend Appreciation ETF /zigman2/quotes/207292160/composite VIG +0.59% — have sucked up a collective $2 billion in 2018, according to Bloomberg data .
The broader safe haven of value investing has also returned to the fore. Though the Russell 1000 Growth Index /zigman2/quotes/210598136/delayed RLG +1.31% has consistently outperformed the Russell 1000 Value Index /zigman2/quotes/210598148/delayed RLV +0.29% over the past few years, the story has been different in the wake of the tech earnings meltdown, with value pacing ahead since July 25.
All this is not to say that tech can’t come back, and that there aren’t individual names worth pursuing. But if you’re worried that the tech-sector rally is getting long in the tooth, here are some potential investments.
Right now, banks are riding both a favorable political climate in Washington — something not many other sectors can say given trade-war uncertainty — as well as the flight to value. Thanks to a big reduction in the corporate tax rate and a move by regulators to cut back Dodd-Frank restrictions, bank stocks are among the best performers in 2018.
There has been a bit of concern that this is getting to be a crowded trade, but take megacap Bank of America /zigman2/quotes/200894270/composite BAC +0.44% as a good case study. The stock has climbed more than 10% since July 1 as it bumps up against a new 52-week high. Furthermore, it remains attractive as a value play with a price-to-book ratio of 1.3 — at the low end of the market, even after its run.
In mid-July, just before tech really started to roll over, Barron’s wrote that utility stocks are “worth a second look” thanks to the continued attractiveness of their yield, as interest rates have plateaued despite continued talk of tightening at the Federal Reserve. Consider that flagship utilities fund the Utilities Select Sector SPDR ETF /zigman2/quotes/206645117/composite XLU -1.08% boasts a yield of about 3.3% at present while the 10-year Treasury still yields just south of 3.0% and the broader S&P 500 yields just 1.8% or so.
Separately, there are few industries safer from a trade war thanks to the 100% domestic focus. And while some businesses have cyclical power demands, the baseline business of utilities is sure to keep these stocks chugging along regardless of economic trends.
That’s in part why a few big utilities, including First Energy /zigman2/quotes/201870541/composite FE +0.66% and NRG Energy /zigman2/quotes/208308731/composite NRG -1.01% are both up more than 15% year to date. And while the sector as a whole hasn’t burned down the house in 2018, utility stocks have been trending higher since tech’s recent choppiness; the popular Utilities Select Sector SPDR ETF /zigman2/quotes/206645117/composite XLU -1.08% is up about 3% in the last 30 days.