Can Stocks Hang On?

Stocks are up. The S&P even squeaked out new all-time highs before the first quarter officially came to a close last week.

So Q1 2013 is finally behind us. Now comes the tricky part…

The second quarter has been an absolute stinker for the past few years. The market hasn’t deviated too far from its script: big gains to start the year, then a spring correction. We’ve been over this.

But of course, the media is jump-starting the new quarter with more unhelpful headlines like this one:

“Stock market rally may lose steam”

Well, of course it might. All rallies eventually do. But instead of giving you any shred of useful information, you’re left with the simplest of explanations with not substance: stocks go, they might soon go down. Whatever…

Let’s try something relevant instead:

“Following prior strong opening quarters, the S&P 500 has averaged a gain of 1.4% for the remainder of the year (median 5.8%) with positive returns in ten out of twelve years,” reports Bespoke Investment Group.

Now we’re getting somewhere. Statistically, strong starts end with the market hanging onto the gains. But the rest of the year usually isn’t as impressive as the first quarter.

So how do you attack the start of the new quarter? Two words: think defense.

We’re seeing defensive sectors like healthcare and consumer staples take the lead in a big way right now. Both of these groups are outperforming the broad market by about 5%.

Consumer Staples and Health Care Top the Broad Market

As the second quarter kicks off today, here’s what you should do:

1. Take some of your speculative gains off the table

2. Hold tight to your defensive stocks

Greg Guenthner
for The Daily Reckoning