A stock market that sells off eight of nine days is not a good market.  Even the Facebook IPO is being viewed as a one-off item rather than a systemic item which will make the market stronger.  With “Sell in May and go away!” remaining prevalent and with Europe in meltdown as Asia slows, the big question is where to hide.  Some investors just refuse to accept the floor-level rates of CDs and Treasury bills and Treasury notes, so they go hide out in the defensive stocks like tobacco, consumer staples, basic level food, utilities, big-pharma, and maybe even those high-yields in telecom.  This is a market where defensive stocks should rule the roost.

People are going to buy Coke and Pepsi, most likely, in almost any economy.  Pepsico, Inc. (NYSE: PEP) is actually up 0.6% at $67.23 against a 52-week high of $71.89; Coca-Cola Company (NYSE: KO) is down 0.6% at $76.95 against a 52-week high of $77.82.  With yields of about 3% on average, these pay about the same as the 30-Year Treasury’s long-bond.  The beer segment remains uncorrelated to defensive stocks as it did last week (in part due to currencies): Anheuser-Busch InBev SA (NYSE: BUD) is down by 0.7% at $71.43 and Molson Coors Brewing Company (NYSE: TAP) is down 1.2% at $40.81.  Even the best water utility in America via American Water Works Company, Inc. (NYSE: AWK) is down another 1% $33.99 against a 52-week and all-time high of $34.89.

Food is supposed to be defensive.  You gotta eat, right?  McDonald’s Corporation (NYSE: MCD) is down almost 0.4% at $91.55 and getting further and further away from that $102.22 all-time high recently seen.  The rest of the defensive food segment is up to mixed as food is defensive and with dividends:

• Kraft Foods Inc. (NYSE: KFT) is up 0.4% at $39.20 with a 3% yield that challenges the long-bond;
• ConAgra Foods, Inc. (NYSE: CAG) is down 0.2% at $25.67 with a 3.7% yield that beats the long-bond;
• Campbell Soup Co. (NYSE: CPB) is up 0.25% at $34.49 with a 3.4% yield that beats the long-bond;
• Hormel Foods Corporation (NYSE: HRL) is down only 0.1% at $29.08 but its 2.1% yield is ‘only’ paying what the 10-year has been paying recently.

Smoking has those nice 5%-plus yields for the defensive tobacco sector: Altria Group Inc. (NYSE: MO) is down only 0.1% at $31.75 against a 52-week high of $32.62; Vector Group Ltd. (NYSE: VGR) is down 0.5% at $16.73; and Reynolds American Inc. (NYSE: RAI) is down only 0.2% at $40.41 against a high of $42.81.

Diapers, toothpaste, deodorant, and shaving… consumer products are acting defensive: Procter & Gamble Co. (NYSE: PG) is down only 0.3% at $63.50 with a 3.5% yield; Kimberly-Clark Corporation (NYSE: KMB) is up by 0.3% at $79.62 with a 3.7% yield; Colgate-Palmolive Co. (NYSE: CL) is down 0.1% at $99.20 but it only pays about 2.5% for a dividend yield.

Drug and medical is mixed to positive: Merck & Co. Inc. (NYSE: MRK) is up by over 0.8% at $38.35 with its 4.4% yield; Pfizer Inc. (NYSE: PFE) is down only $0.01 at $22.64 with its 3.9% yield; and Johnson & Johnson (NYSE: JNJ) is down 0.5% at $64.00 with its 3.8% yield.

Those smartphones and telephones are not acting defensive at all today with Verizon Communications Inc. (NYSE: VZ) down 0.9% at $40.80 with its 5% yield and with AT&T, Inc. (NYSE: T) down 0.7% at $33.36 with a 5.4% yield.

Some investors are willing to suffer from the near-zero return of Treasuries, while others are going to try to look for the safest of stocks to seek safe and steady dividends.  The DJIA is down 0.7% and the S&P 500 was down 0.6% at last look.  Both are actually much better than what we were looking at just two hours or so ago.

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JON C. OGG

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