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Decelerating economic growth and declining money supply are expected to be the major factors driving a market correction. Analysts also expect a deceleration in corporate profits this earnings season, which increases the probability of a broad market pullback. The Fed’s sooner-than-expected tapering plans have also tempered market sentiment. In this regard, Invesco analyst Kristina Hooper said, “We’re in something of a precarious period…because we’ve gone so long without any kind of significant sell-off for the stock market. In addition, we’re watching the Fed try to maneuver into a very different position…There’s always a risk when you have a market that has been driven largely by the Fed.”
Bearish market sentiment is expected to affect the booming cyclical stocks the worst as investors rotate toward defensive stocks with proven ability to withstand pullbacks. Furthermore, these companies generally operate in the production and supply of goods and services with relatively inelastic demand, ensuring stable revenue and earnings growth irrespective of decelerating economic recovery. So, because fundamentally sound defensive companies Merck & Co., Inc. (MRK), CVS Health Corporation (CVS), and Waste Connections, Inc. (WCN) are expected to witness stable growth in the near term, we think it could be wise to bet on these stocks now.
