Global stock markets have been highly volatile for several weeks, and many investors are selling off shares across the board due to the uncertainty-fueled panic. The arrival of Donald Trump and subsequent tariffs against virtually every country the U.S. trades with have sparked trade tensions. Identifying and investing in defensive stocks might be the smartest move right now.
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What is happening?
The U.S. president announced tariffs after taking on his role. The resulting trade tensions culminated in a week of pullbacks for stocks across the board in Canada. Between April 2 and April 8, the S&P/TSX Composite Index declined by 11.07%. A sudden announcement of a three-month pause on tariffs resulted in a 5.42% uptick between April 8 and April 9. However, that announcement also included a 125% increase in tariffs on all Chinese imports to the U.S. after it announced retaliatory tariff hikes.
Reports from China indicate that the country might stop implementing protections for intellectual property. Without IP protections in place, Chinese manufacturers could possibly start replicating everything from smartphones to vehicles at lower costs than most other countries. If that comes to pass, it can have devastating consequences for global economies.
Against this backdrop, identifying defensive investments might be necessary for stock market investors. Here are two you should have on your radar.
Fortis
Utility businesses provide an essential service to customers that they simply cannot let go of, no matter how bad their economic situations might get. Everyone needs natural gas and electricity in their homes, and Fortis (TSX: FTS) is one of Canada’s top utility stocks providing those utilities. Fortis owns and operates several utility businesses across Canada, the U.S., and the Caribbean.
Besides offering essential services, Fortis’s overall business model is solid. The company’s utility businesses operate in highly rate-regulated markets, and almost its entire revenue comes from long-term, contracted assets. The stable and predictable income lets the company fund capital projects, pay its shareholders, and increase dividends regularly. Fortis stock has a dividend-growth streak spanning half a century to prove that.
As of this writing, Fortis stock trades for $62.68 per share and boasts a 3.92% dividend yield that you can lock into your self-directed portfolio today.
Loblaw
Loblaw Companies (TSX: L) is another defensive business you can consider investing in for stability. The $59.49 billion market-cap company is one of Canada’s largest grocery, pharmacy, and general merchandise retailers. Retail stocks, particularly those with sizeable businesses, can be good investments to consider to protect your capital in the stock market.
Loblaw is a top stock to own for stability, income, and growth because it is the country’s most dominant food and pharmacy retailer. Its business model can perform well in virtually any economic environment. Its performance compared to the rest of the stock market reflects that. In the last five years, Loblaw stock is up by almost 166%. In the same period, the S&P/TSX Composite Index is up by 64.5%.
As of this writing, Loblaw stock trades for $196.60 per share, and it pays its investors their quarterly distributions at an annualized 1.04% dividend yield.
Foolish takeaway
Despite the recent uptick, there is no telling what will happen next and where markets will go. All the gains made as this week of trading comes to an end can just as easily be wiped out to make way for another even deeper market pullback. Even investors who love eating risk for breakfast will understand the value of allocating funds to defensive stocks right now.
Suppose you want to inject some stability and dividend income into your self-directed portfolio and get a good chance to protect your investment capital right now. In that case, Fortis stock and Loblaw stock can be good investments to consider.
