Volatility has returned to Wall Street after a solid first seven-month period of the year that saw the S&P 500 rally more than 21%, while the Nasdaq rallied nearly 40% driven by big tech and the AI frenzy.

However, August, which is known for being one of the worst months for markets historically, has seen stocks scrambling for direction owing to multiple macroeconomic factors. The Nasdaq has lost more than 7.2% in the last three weeks, while the S&P 500 is down 4.6%, its worst three-week decline since the Mar 10 week.

Bond Yields Soar

The recent jump in bond yields is taking a toll on the stock market. The 10-year Treasury yield jumped to 4.366% on Aug 22, hitting its highest level since 2007 and up nearly 40 bps month to date.

An increase in bond yields reduces the appeal of a stock’s future earnings. This is because higher bond yields provide investors with the opportunity to get lucrative returns from investments that are considerably safer in comparison to stocks.

The recent rise in bond yields came just after the release of minutes of the Fed’s July FOMC that revealed that central bank officials are maintaining a hawkish stance as they believe that more interest rate hikes would be required to ease inflationary pressures. Every time interest rates increase, bond prices fall, which increases their yield.

Fed Open for More Rate Hikes

Inflation has sharply declined and nearly halved from its 40-year-high of 9.1% in June 2022. However, the Fed is open to more interest rate hikes as inflation is still elevated and a lot higher than its 2% target.

Meanwhile, investors’ sentiments were dented further after the S&P Global Ratings on Aug 21 cut the credit ratings on five regional banks with high commercial real estate exposure. This comes after Fitch Ratings, earlier this month, downgraded the U.S. long-term foreign-currency issuer default rating from AAA to AA+.

Also, credit rating agency Moody’s, earlier this month, downgraded several banks and kept six on review for potential downgrades.

Worries Over China

China’s economic worries are further hurting investor confidence. The decrease in China’s exports and imports is primarily attributed to weakened demand for goods on a global scale.

China is grappling with deflation and substantial debt, which have the potential to impact economies worldwide.

Our Choices

In order to secure one’s portfolio, we have narrowed our search to five stocks from the defensive sectors, such as consumer staples, healthcare, and utilities. Also, these stocks belong to the category of low-beta stocks (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta stocks with a high dividend yield and a favorable Zacks Rank. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy).

McKesson Corporation MCK is a healthcare services and information technology company. McKesson operates through two segments: MCK’s Distribution Solutions segment distributes branded and generic pharmaceutical drugs along with other healthcare-related products on a global basis. McKesson Corporation’s Technology Solutions segment provides enterprise-wide clinical, patient care, financial, supply chain, and strategic management software solutions.

McKesson Corporation has an expected earnings growth rate of 4.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.8% over the last 60 days. MCK currently has a Zacks Rank #2. McKesson Corporation has a beta of 0.60 and a current dividend yield of 0.52%.

Entergy Corporation ETR is primarily engaged in electric power production and retail distribution of power. ETR has 30,000 megawatt (MW) of generating capacity, including more than 8,000 MW of nuclear fuel capacity.

Entergy has an expected earnings growth rate of 4.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. ETR currently has a Zacks Rank #2. Entergy has a beta of 0.64 and a current dividend yield of 4.52%.

PepsiCo, Inc. PEP is one of the leading global food and beverage companies. PEP’s complementary brands/businesses include Frito-Lay snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and Quaker foods. PepsiCo serves customers in more than 200 countries and territories.

PepsiCo has an expected earnings growth rate of 10.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.5% over the last 60 days. PEP currently has a Zacks Rank #2. PepsiCo has a beta of 0.52 and a current dividend yield of 2.88%.

Johnson & Johnson JNJ operates through pharmaceuticals, medical devices and consumer products divisions. JNJ comprises some 250 subsidiaries, which clearly means that the business is extremely well diversified. Johnson & Johnson’s diversification helps it to withstand economic cycles more effectively. JNJ has 25 platforms with more than $1 billion in annual sales.

Johnson & Johnson has an expected earnings growth rate of 5.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. JNJ currently has a Zacks Rank #2. Johnson & Johnson has a beta of 0.54 and a current dividend yield of 2.87%.

Atmos Energy Corporation ATO, along with its subsidiaries, is engaged in the regulated natural gas distribution and storage business. ATO serves nearly 3.4 million customers in more than 1,400 communities in eight states, from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energyoperates more than 72,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.

Atmos Energy has an expected earnings growth rate of 8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. ATO presently has a Zacks Rank #2. Atmos Energy has a beta of 0.61 and a current dividend yield of 2.53%.
Johnson & Johnson (JNJ): Free Stock Analysis Report

Entergy Corporation (ETR): Free Stock Analysis Report

McKesson Corporation (MCK): Free Stock Analysis Report

PepsiCo, Inc. (PEP): Free Stock Analysis Report

Atmos Energy Corporation (ATO): Free Stock Analysis Report

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