Wells Fargo analysts say the time has come to move away from 25 stocks in a “reopening portfolio” that has benefited from the economy’s post-Covid recovery, companies such as Darden Restaurants and Bath & Body Works, downgrading the band to neutral from bullish. In their place, Wells is now pushing a batch of defensive names, such as Verizon, McDonald’s and Coca-Cola, whose prices are less volatile and stand to gain in the next recession. If history is any guide, stocks in Wells Fargo’s “recession portfolio” are likely to grow in importance and become an increasingly important part of the S&P 500, according to the bank. While weightings of more defensive S&P 500 sectors “have rebounded from their recent lows, history suggests there is still significant room for further increases”, in sectors such as utilities, commodities pharmaceuticals, consumer staples and low-volatility stocks generally, analysts led by Christopher Harvey wrote on Tuesday. Wells Fargo’s baseline scenario now calls for a hard landing for the economy as the Federal Reserve’s hawkish monetary policy and risk-averse investors combine to tip the economy into recession. Stocks only “find a bottom when the market thinks the Fed hikes will start to slow.” In this environment, Wells’ recommended strategy is to filter out long ideas, find the five stocks with the lowest price volatility in each of the 11 S&P 500 industry sectors, and assign them an equal weight of 1, 8% in a model portfolio. . The list below shows the single stock Wells found with the largest market capitalization among low-volatility names in each of the 11 S&P 500 sectors.
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