Valuations for defensive shares are higher than any time since the bull market began. Makers of consumer staples in the S&P 500 trade at 18.1 times annual profit after gaining 14 percent in 2013, led by Avon Products Inc., which has a multiple of 31.
Utilities Rally
Centerpoint Energy Inc. led utilities stocks to a 13 percent rally, pushing the group’s multiple to 17, while health- care shares such as Celgene Corp. and Boston Scientific Corp. gained 16 percent to reach the industry’s highest price relative to income since February 2008.
The valuations signal danger after investors pulled more than $400 billion from U.S. stock mutual funds between 2009 and 2012, said Jonathan Golub, UBS AG’s chief U.S. equity strategist. While about $18.4 billion was sent to those funds in January, the deposits shrunk to $1.1 billion for February and March, according to the Investment Company Institute.
“When you have the market being led by defensives, it’s not a positive sign for a continued rally,” he said in an April 3 phone interview. “The market’s gotten ahead of itself.”
The rally has left the S&P 500 trading at 15.3 times reported earnings, higher than it was in April the last two years, Bloomberg data show.
“Now’s the time to wait and see,” said David Joy, the Boston-based chief market strategist at Ameriprise Financial Inc., which oversees about $681 billion, said in an April 4 phone interview. Joy predicted gains for equities in December as housing and manufacturing improved. “There’s no question the cyclicals are cheaper. The question is, when do they take over the leadership?” he said. “I wouldn’t be terribly aggressive.”