Wolfe Research: Utilities remain the strongest bet for growth and EPS
Luis Alvarez

With the belief that the Fed will increase rates once again in November and/or December, a Monday Wolfe Research report suggested that the defensive sectors of the S&P 500 (NYSEARCA:SPY) should be the most favored.
Defensives such as utilities, consumer services, staples, pharmaceuticals and biotechnology, telecommunications, and food and beverage have historically performed best in the retrenchment phase of the U.S. market cycle.
âAreas most leveraged to the âBig 7â (AAPL), (AMZN), (GOOG), (META), (MSFT), (NVDA), and (TSLA) are likely to underperform as rates grind higher before initially outperforming as the economy weakens,â the report said.
U.S. yields have reached higher levels than before the onset of the Financial Crisis (2007): 5.11% for the 2-year yield and 4.43% for the 10-year yield.
Wolfe analysts believe two phases are occurring in the âgrind higher in yieldsâ environment, with the first one already under way:

Rising rates will put additional downward pressure on valuations, especially in areas categorized as "long-duration trade,â such as autos, retail, software and services, and semis and equipment.
The delayed impact of the past rate increases will spark a recession, lowering earnings per share.


Not only that, but Wolfe analysts said that âthe projected long-term U.S. fiscal situation is on an unsustainable path, and higher-than-expected deficits make the outlook that much more dire."


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