A growing collection of US stocks has been on quite a rollercoaster ride this month. Yet the US stock market as a whole has so far proven to be relatively resilient to the conflict in the Middle East. In fact, despite all the doom and gloom of media headlines, the S&P 500‘s so far only slipped by around 2%.
However, the story’s been quite different when zooming in on individual sectors. So which US stocks are the winners and losers right now? What lies around the corner? And what can investors do to protect their portfolios?
Winners and losers
As skyrocketing oil & gas prices have already made clear, the war in Iran doesn’t bode well for energy-related supply chains. But it’s particularly problematic for industries that rely heavily on fossil fuels.
Most notably, this includes airlines and cruise operators who consume a lot of fuel. American Airlines, United Airlines and Delta Air Lines have already seen roughly 31%, 23%, and 16% wiped off their respective share prices since the start of the year. And it’s a similar story for Carnival Corporation and Norwegian Cruise Line.
On the other side of this equation sit the energy producers such as ConocoPhillips, Chevron, and Exxon Mobil, all of which have enjoyed a 20%+ surge over the same period. Meanwhile, defence contractors including Lockheed Martin and Northrop Grumman have enjoyed even bigger rallies as war expands their order books.
Risk of contagion
With some sectors benefiting and others taking a tumble, the overall impact on the S&P 500 has been fairly muted. But that could change depending on how the situation evolves.
A prolonged conflict risks inflation making a nasty comeback, particularly for energy prices, putting more pressure on consumer wallets. It could even delay or perhaps reverse recent interest rate cuts. And combined, these effects could adversely impact the real estate, automotive, discretionary retail, construction, and industrial sectors.
So what should investors do now?
Keep calm and carry on
While the evolving geopolitical and macroeconomic landscape is concerning, it’s essential not to start panic-selling. Instead, investors should review their personal risk tolerances and adjust their portfolios accordingly.
For investors who can stomach the volatility, using any future dips in stock prices to buy more quality shares at a discount could pave the way for superior long-term returns.
For investors who are more conservative, explosive defensive sectors like healthcare could be the smarter move. In fact, many institutional investors have begun suggesting clients consider pharma giants such as Johnson & Johnson (NYSE:JNJ).
The company’s proven itself to be a reliable compounder with 63 consecutive years of dividend hikes and a revenue stream that’s almost entirely insulated against the ongoing conflict.
After all, even if higher oil prices tip the US economy into a recession, demand for life-saving drugs won’t change. And with a promising pipeline of new drugs, the long-term trajectory of this healthcare giant continues to look rock solid.
Of course, no investment’s ever risk-free. And Johnson & Johnson’s having to tackle growing pressure from rival generic manufacturers as well as shifting procurement regulations in China – both taking their toll on revenue.
Regardless, with a stellar track record of resilience, nervous US stock investors may want to take a closer look.
