Is It Time to Get Defensive?

As the bull market in equities enters its ninth year, investment strategist Jim Paulsen at the Leuthold Group recently released a research note in which he pointed out that the % of market cap represented by the “defensive” sectors has reached a multi-decade low, now lower even than at the peak of the dot-com bubble. This is a sign of lop-sided investing in which speculative investments are concentrated in a few areas of the market (like the current pursuit of the FANG stocks (Facebook, Amazon, Netflix and Google)), and other areas are left for dead.

Paulsen writes, “More and more of the leadership stocks have been the more aggressive, high beta stocks and a lot of the defensive names have been left for dead. They've diminished as far as their size of the overall [S&P 500] index.”

His advice to those investors holding little more than the FANGs? Pat yourself on the back and congratulate yourself for a great investment, and then “maybe buy a beat-up consumer staple or utility here or pharma stock today that no one is taking a look at, but sells at a much better value." (Chart from cnbc.com)

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