Premarket: Recession-proof stocks are having a moment

That encourages Wall Street to buy defensive stocks that have historically performed well even under difficult circumstances.

Healthcare companies in the S&P 500 rose 3.8% in April, while the broader index fell 0.7%. The utilities sector is up 3.1%, and companies that make consumer staples like food and hygiene products are up 3.6%.

In Europe, healthcare companies in the benchmark STOXX 600 index are up 6% this month, while the broader index is only up 1%. Public services have increased by 3.5% in April.

“Given the high levels of uncertainty, we advise investors to add to the hedges, including defensive sectors such as global health care,” strategists at UBS Global Wealth Management told clients this week.

Pfizer was one of the best performing stocks in the United States on Thursday after it announced it would buy ReViral, which is developing drugs to treat a common respiratory virus. Pfizer (PFE) shares are up 4% and are now nearly 7% higher this month.

Health care is also the favorite defensive pick among Citi strategists. They said revenue from Covid-19 vaccines and treatments, as well as “a continuing need for boosters,” will continue to support companies in the sector and industry mergers are likely to intensify.

Traders are not in full fear mode like they were a month ago, but there is enough uncertainty about the outlook to inspire a degree of caution.

Why play defense? In Europe, as the war in Ukraine continues, there is a growing consensus that high energy prices will wreak havoc on the region’s economy.

“If energy prices were to return to the highs of early March and stay there, the eurozone could slip into recession,” said Simon Wells, chief European economist at HSBC. “Stagflation is a real risk.”

Meanwhile, in the United States, Deutsche Bank is forecasting a recession next year as the Federal Reserve withdraws support for the economy in a bid to limit inflation. On Friday, Michael Hartnett, chief investment strategist at Bank of America, said he believes a “recessionary shock” is looming in the markets.

Wall Street is currently locked in a debate over whether anxiety about the economy is fully reflected in stock market prices. Otherwise, defensive stocks could continue to outperform.

China lockdowns pose a growing threat to the economy

China’s unwavering commitment to eradicate covid by locking down big cities like Shanghai threatens to hit its vast economy hard, put more pressure on global supply chains and drive up inflation.

The latest: Shanghai, home to China’s main financial hub and some of its biggest airports and seas, has been shut down for 12 days, and there’s no sign the restrictions will be lifted any time soon, reports my CNN business colleague Laura I have.

Small businesses have been hit hard, with shops and restaurants being forced to close. Tesla, as well as many Chinese manufacturers, are unclear on when they can restart their factories. Meanwhile, port delays are getting worse and air freight rates are skyrocketing, putting even more pressure on world trade.

The tight restrictions have dispelled any expectations that the country might relax its zero-tolerance approach to Covid-19.

“The rise in cases in Shanghai has convinced top leaders that there is no middle ground between zero Covid and living with Covid. From now on, fast lockdown could be the predominant strategy,” said Larry Hu, chief economist for the Greater China at Macquarie, in an investigative report this week.

President Xi Jinping has pledged to “minimize” the economic impact of his covid policy, but the deteriorating situation in Shanghai and the prolonged lockdown raise tough questions about Beijing’s approach to outbreaks of Omicron, a much more infectious variant. of the original virus.

“The Omicron variant is highly infectious and it has become increasingly difficult for China to achieve its ‘zero covid’ goals while most other countries opt for a ‘living with covid’ approach,” Ting Lu said. , managing director and chief China economist for Nomura, wrote in a research note.

He believes rising cases from China and escalating lockdowns in Shanghai and several other cities will suppress activity in a wide range of sectors, including in-person services, travel, logistics, construction and some manufacturing.

“The economic costs could be staggering,” Lu said, adding that global investors may be “underestimating” the impact of China’s zero-Covid policy on its economy and markets.

Good news on student loans was bad for this stock

The Biden administration’s decision to extend a pause on federal student loan payments through the end of August was cause for celebration among 43 million Americans.
Not so much for fintech firm SoFi, whose shares plunged Thursday, reports my CNN Business colleague Paul R. La Monica.

SoFi offers private student loans and refinancing to college students and their parents, as well as graduate students.

That means the White House’s decision to extend its payment moratorium this week will hit its sales and profits, the company said.

And SoFi doesn’t expect the situation to change anytime soon, pointing to the fall midterms. He said he believes the pause will be extended again and will remain in place until 2022.

He now expects earnings of around $100 million this year. His previous forecast was for a profit of $180 million.

That said: the moratorium extension could help the broader stock market if it supports the US economy. While the pause costs the US government about $4 billion a month, it provides debt relief equivalent to an average of $5,500 per borrower, according to a recent analysis by the nonprofit Committee for a Responsible Federal Budget.

Until next time

The central bank of India announces its latest policy decision.

Next week: US inflation data for March could fuel the debate on how aggressive the Federal Reserve should be and whether the central bank could push the economy into a recession.

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