The final estimate for second-quarter GDP has slowed down to 2%. The economy is being restricted from expanding by the prevailing trade war between the United States and China. Given this economic slowdown, investors should look for safer investments like defensive stocks.
Behind the Downward Revision in U.S. GDP
As per the Bureau of Economic Analysis, U.S. GDP growth estimate for the second quarter is finally 2%. The report highlights downward revision of personal consumption expenditures and non-residential fixed investments. On the other hand, the report stated that there has been a rise in government spending and exports.
Consumer outlays did increase during spring mostly due to a record low unemployment rate and rise in income. Nonetheless, the government still trimmed its consumer spending estimate. Consumer spending was revised to an increase of 4.6% from 4.7% as they restrain themselves from spending on takeout and other prepared foods.
Business spending and investments remain disappointing. Even after the Federal Reserve’s monetary easing policies, businesses are bearing the brunt of the U.S.-China trade war, which is weighing on the ongoing expansion of the U.S. economy that has lasted for more than 10 years after the 2009 recession.
Government spending grew 4.8% from the previously reported 4.5%. Construction of roads and building throughout different states was a major part of government spending.
Why Play Defensive?
The second-quarter final GDP revision report clearly shows sluggishness in the economy. In such a scenario, investors can opt for defensive stocks.
Defensive stocks have stable earnings regardless of any market gyrations. There is constant demand for these products in any business cycle as they are necessary items. In other words, when the economy is slowing down and consumers are spending less, these products are unaffected as people with need them for survival.
Consumer staples, health care and utilities’ stocks fall under this category.
5 Top Picks
We have selected five such defensive stocks that also carry a Zacks Rank #1 (Strong Buy) and 2 (Buy).