Investors Testing Limits of Defense – WSJ.com

Investors Testing Limits of Defense – WSJ.com.

Investors are flocking to stocks of large, dividend-paying companies, particularly those seen as less vulnerable to a slowing economy or turmoil in Europe. But their popularity has pushed these so-called defensive stocks to their priciest levels in years—and raised questions about whether they have run too far.

Associated Press

Defensive stocks are seen as a relative haven from a slowing U.S. economy, worries about China’s growth and turmoil in Europe. They also offer a reliable income stream that is far higher than yields offered by U.S. Treasurys.

Since mid-April, telecommunications, utilities, healthcare and consumer staples have been the only sectors of the 10 Standard & Poor’s 500-stock index to rise. Telecom stocks are up 14% and utilities are up 7.5%. In contrast, the S&P 500 has fallen 1.2% and the Dow Jones Industrial Average has lost 1.6%.

Defensive stocks are trading near a decade high relative to their more economically sensitive peers, judged by their price-to-earnings ratios, according to Adam Parker, chief U.S. equity strategist for Morgan Stanley

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