You’ve probably heard the saying, “Sell in May and go away.” Well, there’s a similar old investing adage that makes even more sense to me: “September is historically bad for stocks.”
Just look at the last few years. In each of the last four Septembers, the S&P 500 posted a loss every single time. In 2022, it was a painful 9.3% plunge.
September is, in fact, historically the worst performing month for stocks overall. So far in 2024, tech stocks have been all the rage, but that’s changing fast.
Over the last few weeks, investor confidence has waned as growth in the tech sector appears to be slowing, interest rates remain high, and a potential recession looms.
Last week, the Nasdaq Composite suffered its worst day since early August. And on Tuesday, even Nvidia (NVDA), the stock that has been the AI boom, gave up its gains after the company’s earnings report fell short of some investors’ very high expectations.
That’s why I’m advising you to take some chips off the table — no pun intended — and move a portion of your capital to overlooked sectors that stand to benefit from the current environment.
You won’t see Wall Street “watch parties” for these sectors… There won’t be any dogs named after these stocks… These are “boring” but reliable companies with a long history of steady performance – and they could be about to enter a major breakout.
Here are the three stocks I’m recommending now…
Consumer Staples
Forget AI… people will always need food. That’s why this sector offers incredible stability in turbulent markets. Even in a recession, people still have to eat… and drink… and clean things…
Think of companies like J.M. Smucker (SJM) and Campbell Soup (CPB).
You and I probably both have a can or two of their products in our pantries right now.
The beauty of this sector is its resilience.
You and I know that, but so does my colleague Chris Johnson, a veteran quantitative analyst with Money Morning. His latest analysis of the market highlights SMucker and Campbell Soup as potential outperformers as a defensive tilt has taken over the market.
He writes, “Consumer staples and utilities were the two leading sectors in the S&P 500 on Tuesday [8/29], indicative of the defensive tilt in markets after the latest economic data revived growth fears.”
That tilt is here, and I don’t expect it to change anytime soon.
Both Campbell’s and SMucker’s are trading at or near their 52-week highs.
That means Mr. Market has already recognized that there could be something special here. But both still offer the potential for modest gains as a flight-to-safety takes hold of the market.
Materials
You need “stuff” to build all the massive warehouses and factories for AI data centers to even exist… to build anything for that matter. That means materials, like copper, steel, aluminum, and other base metals are going to be in high demand as the AI boom continues… and as the US government embarks on a massive rebuilding program to bring semiconductor chip production back to U.S.
You can get exposure to all of these materials in one fell swoop through the Materials Select Sector SPDR Fund (XLB).
Chris Igou, editor of our DailyWealth Trader advisory, recently discussed the long-term technical strength of XLB…
XLB has since made up all the ground it lost over that span. And where it found “resistance” at the $90 level back then, it’s finding “support” today.
In the chart below, you can see XLB punching through that $90 barrier in early 2024…
Since that August 27 analysis, XLB has moved higher to $98, and it’s now poised for even more gains.
Utilities
You also need a lot of electricity to power all those warehouses and factories… and everything else that uses electricity. That’s why I’m also recommending that you put some of your tech profits into utility companies, like Southern Company (SO) and Duke Energy (DUK).
In his analysis of consumer staples above, Chris Johnson of Money Morning also discussed the resurgence of utilities:
Utilities stocks eked out a 0.1% gain. Southern Company and Duke Energy had gained by more than 1%, each.
It might not seem like much… but it’s clear evidence of a shift to “safety” and an opportunity for investors ahead of the crowd.
DUK has been quietly outperforming the market this year. It’s up 15% since the start of January.
SO is up 4%, which is better than most tech stocks over the last month.
What should you do?
It’s simple.
Sell some of your winners in the tech sector and move those profits into less sexy, but reliable sectors that are set for a breakout. Think consumer staples, materials, and utilities.
These may seem like “boring” businesses, but they’re what the market is demanding as we head into volatile September.
Join me again tomorrow as I break down the “pick-and-shovel” AI stocks set to explode as the Nvidia dip triggers a buying frenzy.
