Utilities: The Closest Thing to A "Safe" Bull Market

Investors needed to wait until the 6th trading day of the New Year to get positive results out of the market at large. Call it a snap-back rally. Name it a "dead cat bounce." Or, if you prefer, you may determine that we've seen enough down time for January.

I wouldn't be so sure.

Roughly 3 out of 4 stocks currently trade below their 200-day moving averages. (That has a lot of technical analysts running for the hills.)

Historical junkies see little reason for cheer either. They find that the first 5 trading days of January typically send a signal about the likely outcome for the days and months ahead. (And when the first 5 days are negative, the results are often quite unappealing.)

Economists are split. Some are calling for a recession, and others expect Fed rate cuts to stimulate economic output, with the 2nd or 3rd quarter rebounding nicely. Yet even a "split decision" on the part of economists has given investors pause for concern.

Remember, the markets move higher on certainty and lower on uncertainty. In fact, it's not a recession itself that causes stocks to fall; rather, it is the uncertainty about the possibility of bad times ahead that causes volatility and sell-offs.

And then there are those who insist that the markets will get back on track. Contrarian investors see strong evidence in the put-call ratio that the extreme fear will lead to "panic buying." (Maybe that's what we witnessed today?)

Meanwhile, fundamental analysts are tripping over themselves to snap up bargains in everything from beaten-down financials to oversold industrials with strong balance sheets. Indeed, it's difficult to say that a market P/E of 14 is unattractive when the comfort zone is often 15-20.

Nevertheless, there are only a few convincing bull markets at the present time. And in truth, they exist in highly defensive sectors like "utilities."

Utilities remain in strong demand. Perhaps it is for the yield, or perhaps it is for the perceived save haven status. Or better yet, it may be due to the global growth story. (People need the lights turned on!)

Whatever the reason, these stocks are above their long-term trendlines. (That satisfies the technical chart-lovers.) And history buffs also endorse the idea that the sector provides relative protection on the downside, while momentum investors can't ignore the relative strength it has enjoyed on the upside.

The best of the exchange-traded world can be found in the iShares Global Utilities (JXI) and WisdomTree International Utilities (DBU).

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