Shares of power producers led market gainers as investors rotated into defensive sectors.

Investors often buy utilities and other defensive shares like consumer staples and healthcare because those companies don't see a dent to demand when consumers have less money to spend. But the party might be just getting started for defensive stocks.

One indicator is the bond market: the difference in yield between the 10-year and 2-year Treasury bonds has shrunk, suggesting less economic demand for markets in the long term. The difference is now 0.81 percentage points.

Morgan Stanley data show that when the difference falls to roughly where it is now defensive stocks outperform economically sensitive, or "cyclical," stocks by a much wider margin.

If the difference in long and short bond yields remains so low, "defensives will continue to lead and outperform cyclicals," wrote Mike Wilson, Morgan Stanley's chief U.S. equity strategist.

Write to Amy Pessetto at amy.pessetto@dowjones.com

(END) Dow Jones Newswires

12-28-21 1711ET