Safe Stocks Underperforming. Yes, We’re In A Bull Market — Expert Says.

It should be clear that we are in a bull market. At least that’s what one market expert says.

“In bull markets historically there’s less of a need, or no need at all, for the safest stocks,” writes technical analyst JC Parets in a recent report from his company AllStarCharts. Technical analysts forecast stock movements by looking at charts, amongst other things.

Safe stocks include consumer staples, a subsector of stocks that focuses on products that people purchase no matter what happens such as soap and toothpaste.

The Consumer Staples Select Sector SPDR exchange-traded fund (XLP
XLP
) tracks such stocks. Lately the price of that ETF has fallen significantly behind the benchmark S&P, Parets notes.

Low Vol Gets Crushed

Another such safe sector is the low volatility stocks tracked by the Invesco S&P 500 Low Volatility ETF (SPLV
SPLV
). Wall Street investors tend to buy this ETF when markets are in tumult such as during a recession. Just like the staples ETF, it has underperformed the S&P 500 index of large stocks.

Other underperforming safe sectors include utilities and healthcare, Parets says.

“Historically when the S&P500 is outperforming these defensive sectors, it happens in healthy market environments,” Parets writes. Put another way, the current situation shows we are in a bull market.

Safe is a Losing Strategy Currently

“It’s when these safety sectors are outperforming that stocks in general are usually under pressure,” or investors are experiencing in a bear market. But that’s not something to worry about unless the defensive sectors catch up to the S&P 500.

Its also worth remembering that in bull markets those stocks with the largest betas tend to outperform low-beta stocks. Beta reflects how much a given stock will move in relation to the S&P 500. A beta of more than 1 is high beta. Less than one is low beta.

The short takeaway from all this is that investors should embrace risk, at least for the time being.