Published February 02, 2016

Safe Stocks for a Bear Market

It’s been hard to make money in stocks this year.

If you’ve been reading the Dispatch, you know the bull market in U.S. stocks has sputtered out.

From March 2009 to May 2015, the U.S. stock market gained 215%, one of its strongest rallies in the last 20 years. However, since topping out in May, the S&P 500 has dropped 9%.

So far this year, all major U.S. stock indexes are down. The Dow Jones Industrial Average has fallen 7.1%...the NASDAQ has dropped 9.3%...the Russell 2000, which tracks 2,000 small U.S. stocks, plunged 11%.

E.B. Tucker, editor of The Casey Report, predicted the end of the bull market in his September issue titled RIP 2009-2015 Bull Market.

Last month’s major stock market decline is the start of a very tough time for stocks and the economy…

The market has recovered in the past two weeks. But we think it’s only temporary. In other words, we’re in the middle of a “dead cat bounce.” It’s looking a lot like 2007.

It was a lonely call at the time. When the issue was published, U.S. stocks were still near all-time highs.

But E.B.’s call has been spot-on. The S&P 500 and NASDAQ are both at their lowest levels in over a year. The Russell 2000 is at its lowest level since August 2013.

•  The S&P 500 is still “technically” in a bull market…

According to the mainstream definition, it takes a 20% decline to kill a bull market. The S&P 500 has “only” declined 9% since May…

By this measure, U.S. stocks are doing OK compared to foreign stocks. Dispatch readers know over half the world is already in a bear market, including large stock markets like Europe, Japan, China, and Canada.

The bull market in U.S. stocks may be technically alive…but it’s looking weak. Earnings for companies in the S&P 500 are on track to decline for the third quarter in a row. That hasn’t happened since 2009, when the U.S. economy was going through its worst economic downturn since the Great Depression.

The bull market looks even weaker when you look beyond the headline indices…

•  Dozens of biotech stocks hit new 52-week lows yesterday…

Biotech companies develop or manufacture new drugs. Many are trying to cure diseases like cancer, HIV, and Alzheimer’s. Because a successful new drug can be worth billions of dollars, biotech stocks can soar hundreds of percent in short periods.

But they are also very risky. Most young biotech companies only have one or two products and don’t make money yet. Biotechs are “aggressive” stocks that investors typically like to own in a strong bull market.

Biotech stocks were flying high for the last couple years. The iShares Nasdaq Biotechnology ETF (IBB), which tracks 190 biotech companies, soared 574% between March 2009 and July 2015. The S&P 500 gained 215% over that time.

However, since July, IBB has crashed 35%, as you can see here:

Many small biotech stocks have plummeted 30% to 40% or more just since the start of the year. Even Gilead (GILD), the largest U.S. biotech company, dropped 18% this year to its lowest level since June 2014.

•  20 utility stocks hit 52-week highs yesterday…

Utilities have gained 6% since the start of the year. They’re the second-best performing sector this year, behind only telecommunication stocks.

Utilities provide electric, gas, and water to people. Because they provide things people can’t live without, they’re businesses that are typically stable. Utilities generate predictable cash flows…and pay steady dividends.

Utilities are a “defensive” play in the markets. They tend to perform better than other stocks near the end of bull markets and in bear markets.

•  Casey Resource Investor editor Louis James’ favorite utility stock is up 27%...

Louis likes American Waters Works Company (AWK), the largest public utility in the United States. It provides water to 15 million people in the U.S. and Canada.

American Water is a large, profitable, and growing company. Louis calls it the kind of stock “one can buy and forget about.”

Here’s Louis:

Whether humans are contributing to global warming or not, global hysteria on the subject is a solid, multi-decade trend. A focal point of concern is fresh drinking water.

…[M]ost of the earth is covered by water. But the oceans are salty, and most of the freshwater is frozen. By one estimate, only 0.007% of our planet’s water is available for human use.

And the population keeps growing. With it, the problem; the UN estimates that by 2025, 1.8 billion people will face water scarcity.

Simply put, after air, water is the most absolutely vital natural resource. Period. It’s in short supply…and getting shorter. Strip away the hype and we’re still left with a potent, long-term trend.

There’s a clear opportunity here to make a lot of money supplying our world with fresh water…and to benefit humanity in the process.

American Water isn’t just a utility. It’s also working on ways to turn seawater into fresh water that people can drink.

Even though Louis’ readers are already sitting on a decent gain of 27%, Louis says the stock is still a “buy.” Click here to get in on this safe, long-term investment by taking a risk-free trial of Casey Resource Investor.

Chart of the Day

Utility stocks typically do well in bear markets…

Today’s chart shows the performance of the Utilities Select Sector SPDR Fund (XLU), which tracks the performance of 31 major U.S. utility companies.

From March 2009 through December 2014, XLU gained just 108%. The S&P 500 rose 204% in the same time.

Since U.S. stocks topped out in late August, the S&P 500 has climbed just 4%. XLU has climbed 9% in that same period to its highest level in a year.

In the last few months, we've pointed out several pieces of evidence that suggest stock prices are going down. The strength in utilities is the latest indicator that we're in a bear market.


Justin Spittler
Delray Beach, Florida
February 02, 2016

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