The best defense: investors flee tech stocks for utilities

The stock market's plunge over the last three weeks has investors showing love to companies they had been ignoring.

Steady, plodding, un-sexy stocks like utilities, household goods makers and real estate investment trusts have done far better than the rest of the market during the recent stumble. And Wall Street is now shunning the stocks that have been leading the market over the last decade, like technology and consumer-focused companies.

The S&P 500 index, the main measuring stick for the U.S. market, has dropped 9.2 percent since Oct. 3 as of Wednesday. The Nasdaq composite, which has a high concentration of tech companies, has slumped 11.4 percent.

Stocks started skidding when a combination of strong economic data and comments from the Federal Reserve led to a big jump in interest rates. Investors began to worry that interest rates would go higher than they expected, and that those increased rates would slow down economic growth. That's been particularly damaging to high-flying stocks like Amazon and Netflix because investors who buy them are expecting many years of strong profits that can be eroded by climbing rates.

"Those sectors are particularly vulnerable because they're (valued) based on cash flows longer into the future," says Kate Warne, an investment strategist for Edward Jones.

Meanwhile investors are worried that growth in company profits will slow down, and the U.S.-China trade dispute continues to drag on. All of that made investors wary of investing in companies that depend on economic growth, like technology, industrial and consumer-focused firms. Tech and retail companies have done far better than the rest of the stock market since the Great Recession of 2008-09, with favorites like Apple, Amazon and Netflix racking up huge gains year after year.

No stock rises forever, and with that much to worry about, maybe it's not a surprise that companies that depend on economic growth would suffer some bumps and bruises. But it's been quite a turnaround: companies like Amazon, Caterpillar and Nvidia are bringing up the rear in the S&P 500 while companies like Walgreens, Conagra and PPL are leading the way. And they haven't just fallen less than the rest of the market. Many of them have actually rallied over those last three weeks.

Considered boring, or "defensive," investors favor those stocks when markets get rough. The amount of cash they pay out in dividends makes them relatively stable, but with the U.S. economy speeding up the last few years, there hasn't been much call for them. Over the last few weeks, though, those stocks haven't just done better than the rest of the market, they've actually climbed while most other stocks fell.

Those groups of stocks don't depend much on economic growth: whether the economy is booming or slowing, people will likely spend about the same amount on breakfast cereal, toilet paper, or water, but in a period of slower growth or a recession, workers who are taking home less pay might not buy a home or might spend less on video games or travel.

Warne says the market's recent weakness won't last because the economy is still doing well. But she said the days of defensive stocks lagging far behind the rest of the market are probably over.

"The gap we've seen over the last few years is likely to narrow a lot," she said. "The real questions behind the scenes is, are we in an entirely different environment? And I think the answer is no."