Play Safe! S&P 500 is Teasingly Close to its 50 DMA: 3 Picks

The S&P 500 notched a marvelous rally in the first three months of 2024, banking on AI optimism and hopes that the Federal Reserve will cut interest rates in the second half of this year.

However, the broader index has experienced a topsy-turvy ride so far this month. This is because of a hotter-than-expected rise in consumer prices and an uptick in wholesale prices that dampened the chances of any rate cuts soon.

Even though the prices of indispensable goods and services dropped significantly from their peak of 9.1% in June 2022, they remain well above the coronavirus pandemic mark.

The Labor Department noted that the consumer price index increased 0.4% month over month in March and rose 3.5% from a year ago, the biggest gain in six months. Analysts had projected a gain of 0.3% sequentially and an increase of 3.4% year over year.

The increase in gasoline and shelter costs largely contributed to the rise in consumer prices. Wholesale prices also heated up last month. In the 12 months ending in March, the producer price index increased 2.1%, up from February's gain of 1.6%. An increase in service prices mostly drove wholesale prices higher, added the Labor Department.

Needless to say, an increase in price pressures will compel the Fed to hold rates steady, which are already at record highs. Higher rates curtail consumer outlays, jack up borrowing costs, derail economic growth and lead to gyration in the stock market.

The S&P 500, thus, has retreated more than 1% so far in April despite ending the last trading session in the green. In reality, the S&P 500 was tantalizingly close to its 50-day moving average (DMA) on Apr 11.

While trading at its session low on Thursday, the S&P 500 was within 33 points of its 50 DMA. It was the closest level the index had reached to its 50 DMA since Nov 2, per FactSet data.

Lest we forget that if the index had fallen below the 50 DMA, it was destined to decline further. Hence, in such a precarious scenario, astute investors should play safe and invest in stocks such as Iron Mountain Incorporated IRM, Organon & Co. OGN and International Business Machines Corporation IBM.

These stocks carry a low beta (ranges from 0 to 1), making them immune to market upheavals. They also provide dividends, a tell-tale sign that they have a sound business model that helps them counter market vagaries. They have a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Iron Mountain provides records & information management services. The company has a beta of 0.94 and a Zacks Rank #1.

IRM has a dividend yield of 3.4% and a 5-year dividend yield of 6.2%. The Zacks Consensus Estimate for its current-year earnings has moved up 4.5% over the past 60 days. The company's expected earnings growth rate for the current year is 7.3%.

Organon is a healthcare company. The company has a beta of 0.83 and a Zacks Rank #1.

OGN has a dividend yield of 6.2% and a 5-year dividend yield of 4.5%. The Zacks Consensus Estimate for its current-year earnings has moved up nearly 1% over the past 60 days. The company's expected earnings growth rate for the current year is 2.4%.

International Business Machines has evolved as a provider of cloud and data platforms. The company has a beta of 0.7 and a Zacks Rank #2.

IBM has a dividend yield of 3.6% and a 5-year dividend yield of 4.9%. The Zacks Consensus Estimate for its current-year earnings has moved up 0.3% over the past 60 days. The company's expected earnings growth rate for the current year is 4.7%.

Shares of Iron Mountain, Organon, and International Business Machines have gained 9.5%, 26.8%, and 13.7%, respectively, year to date.

Image Source: Zacks Investment Research

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