One of the signs that we’re late in a stock cycle is that defensive stocks start to underperform the market. This makes perfect sense.
You can really the effect by looking at a long-term chart of Hershey (HSY), which is a classic defensive stock. This is Hershey’s share price divided by the S&P 500 Total Return Index.
You can see that HSY has been a very good long-term winner. You can also see how the shares badly lagged in 1999-2000 and again in 2007-08. They’re doing so again. HSY has underperformed for four years, and it recently touched a seven-year low for relative strength.
Of course, that’s not the only analysis required, but it’s a good starting point. HSY is going for 17.2 times next year’s earnings and the stock’s yield is up to 2.6%.