2, The stock market is falling. Many investors think of the “stock market” as this huge blob. If the S&P 500 index is falling, then all 500 stocks are heading down at the same speed. The S&P 500 index is composed of 11 sectors. They do not all move together in lockstep. Some rise or decline less than others. When you were in school you might have received an overall grade point average but you took multiple courses, each with it’s own grade. Some sectors may be doing better than others because of sector rotation. Imagine the stock market is a car making a noise. It pays to look under the hood.
3, Contrarian strategies. There are investment strategies (and products based on those strategies) meant to move opposite to the prevailing direction of the stock market. An example (not a recommendation) is the “Dogs of the Dow” or “Dow10” strategy. The investor buys equal amounts of ten stocks in the DJIA 30 stock average with the highest dividend yields. These stocks are often going through a rough time and trading near lows, hence the high dividends. A year later you replace those ten stocks with the ten showing the highest dividend yields at that moment. A stock generally comes off the list because it has gotten through it’s rough period and moved back up in price. What contrarian strategies does your firm suggest?
4, The concept of defensive stocks. These are stocks providing products and services often considered necessities. Around the time of The Great Recession I recall someone mentioning “the consumer was only buying three things: food, fuel and pharmaceuticals.” The message is people might cut down on some purchases, but they still need to eat to survive. Does your firm like defensive stocks? Which ones?
5, The comfort of the familiar name. This idea shares some overlap with the defensive stock concept. Your client pays bills on a monthly basis. This might include their phone bill and power bill. They might not be planning to buy a new car, but they will buy gasoline at the service station. These stocks usually pay dividends. Clients often assume these firms will be around for a long time. What familiar named companies does your firm like?
6, The flight to quality. This expression is often associated with the bond market. If the economy were to slow, companies with weaker finances could be in more serious trouble than firms with strong finances. This implies institutions and other investors would prefer companies with high safety ratings and strong balance sheets. Those firms often have better liquidity for their bonds too. Has your firm been talking about the flight to quality?