Defensive stocks haven't been the best place to hide

By Deepa Seetharaman

NEW YORK, Jan 26 (Reuters) - Traditional safe havens like Wal-Mart and McDonald's have let investors down this year as bleak outlooks and falling profits drive panicked investors to raise cash where they can.

Discount retailer Wal-Mart Stores Inc (WMT.N) and fast food restaurant company McDonald's Corp (MCD.N) were the only Dow components to log a profit in 2008, a year that saw the evaporation of $7.3 trillion of stock market wealth.

But during the first few weeks of 2009, McDonald's has fallen 6.1 percent based on Monday's close, while Wal-Mart has shed a sharp 13.3 percent, alongside a drop of 7.4 percent in the broad S&P 500 index .SPX.

"Perhaps there is no safety spot," said Jack Ablin, chief investment officer of Harris Private Bank in Chicago. "In a market like this, unfortunately, everyone is disappointing."

Profits could tumble 28.1 percent this quarter, the sharpest fall in this six-quarter streak of contracting growth, according to Thomson Reuters data, and bellwether companies across the spectrum have cut or suspended their outlooks.

To help them withstand testy economic times, investors often look to defensive stocks like Wal-Mart and McDonald's and household names like health-care company Johnson & Johnson (JNJ.N) that typically outperform the broad stock market.

But the current sell-off among some blue-chip, household names is due in part to their performance last year, said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

"When you see a stock that's up and you see stocks that are down, the place you go to raise cash is very often times out of the winners," he said.

RECESSION'S DEEP BITE

Of the S&P's top 10 performers last year, eight companies have fallen more than the S&P 500 in the early weeks of the 2009, including U.S. tax preparer H&R Block Inc (HRB.N) and toymaker Hasbro Inc (HAS.N). Biotech Amgen (AMGN.O) has lost 5.8 percent since Jan. 1 after a double-digit gain last year.

To be sure, negative corporate news and grim prospects for stocks have fueled the slide. Wal-Mart investors were rattled by the retailer's smaller same-store sales, while McDonald's said it saw slowing sales growth in overseas markets.

"In the market, you want to be making money, not losing less than the guy next door," said Elliot Spar, market strategist with Stifel Nicolaus & Co said.

But Spar added: "This recession is affecting a lot of companies more than a typical recession. Wal-Mart very rarely makes mistakes."

The fact that these stocks are selling off underscores the continued widespread anxiety among investors and their desperate need for cash in an era of sharp, unprecedented job cuts and declining profits.

"Right now, investors aren't looking real long-term," Ablin said. "If they were, they would be buying stocks, not selling them." (Editing by Jan Paschal)