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JPMorgan: Defensive sectors, like health care and utilities, could outperform

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JPMorgan advised investors to look closely at defensive sectors, like utilities and health care, which it believes have the potential to outshine cyclical names amid generally elevated valuations.

“Defensives such as Utilities and Healthcare, together with commodities, are starting to trade better. We think this will continue as Cyclicals have strongly outperformed Defensives over the past 18 months, trading at P/E relative highs,” JPMorgan indicated in an investor note.

The New York-based bank added: “If the overall market weakens, if the consensus expectations for earnings growth acceleration do not materialize, and even if bond yields move higher from here, we think Defensives will outperform.”

JPMorgan also elaborated that at the end of 2022, cyclicals were extremely cheap for investors, but now they look they look “outright expensive.”

See the below chart that the bank provided:

Highlighted below are some of Wall Street’s most popular ETFs focused on utilities and health care:

Utilities ETFs

  • Utilities Select Sector SPDR Fund (NYSEARCA:XLU)
  • Vanguard Utilities ETF (VPU)
  • Fidelity MSCI Utilities Index ETF (FUTY)
  • iShares U.S. Utilities ETF (IDU)

Health Care ETFs

  • Health Care Select Sector SPDR Fund (NYSEARCA:XLV)
  • Vanguard Health Care ETF (VHT)
  • Fidelity MSCI Health Care Index ETF (FHLC)
  • iShares U.S. Healthcare ETF (IYH)

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