When I was a kid, I loved watching the crime television show Dragnet. The highly rated TV series ran throughout the 1950s and 1960s and became a cultural icon.

Jack Webb, who played detective Sgt. Joe Friday on Dragnet, had a famous catchphrase: “Just the facts.”

Today, as an adult, I follow the Jack Webb school of investing. Without the facts, you’re just another person with an opinion. And by most facts today, investors should exercise caution and seek “defensive growth” investments. I’ll get to the best trading moves now, in a minute.

According to the research firm FactSet, the S&P 500 is projected to report a decline in earnings per share (EPS) of -3.0% for the second quarter. That comes on the heels of a -0.3% decline in the first quarter. Two consecutive quarterly declines constitute an earnings recession.

And yet, stocks remain overvalued. The forward 12-month price-to-earnings (P/E) ratio of the S&P 500 is currently 17.7, higher than the 10-year average of 14.6. The cyclically adjusted price-to-earnings (CAPE) ratio reads 30.5, compared to the median of 15.7.

The current price of a stock is supposed to reflect the present value of a company’s future profitability. These days, we’re looking at high valuations combined with an expected earnings recession. Something’s gotta give.

Read This Story: Do The Math! The Numbers Don’t Add Up

FactSet reports that during second-quarter earnings calls so far, the trade war is one of the reasons most frequently cited by management as a headwind for earnings.

But here’s a bright spot: if history is any guide, these pessimistic expectations won’t come to pass. The following chart tells an eye-opening story.

As you can see, since second-quarter 2016, actual EPS results have always surpassed projections. Over the past five years on average, actual earnings reported by S&P 500 companies have surpassed estimated earnings by 4.8%.

Wall Street’s dirty secret…

Negative earnings are expected for Q219, but there’s a dirty little secret about earnings estimates that Wall Street doesn’t like to talk about. Corporate managers habitually “game the refs” by low-balling forecasts, so they can more easily beat estimates and get a lift in share prices.

To date, about 12% of S&P 500 companies have reported quarterly results this earnings season and 84% have reported better-than-expected earnings. Meanwhile, economic reports continue to depict a resilient recovery.

The Philadelphia Fed reported Thursday that its closely watched indicator of business activity in the mid-Atlantic region bounced back in July after slumping in June to its lowest level in four months.

The survey of manufacturers in Pennsylvania, New Jersey and Delaware, considered a bellwether area, showed a dramatic improvement in orders, shipments, and employment. The general activity index surged by 21.5 points, the biggest jump since 2009, to 21.8, the highest level since a year ago.

Also on Thursday, the Labor Department reported that new applications for jobless benefits rose 8,000 to 216,000 for the week ending July 13. However, the increase was mild and unemployment remains at a 50-year low.

This mixed-bag environment has weighed on stocks in recent days. Worries persist that earnings this quarter will take a hit from the protracted trade war and slowing global economic growth.

Investors were rattled Tuesday, when President Trump repeated his threat to impose a fresh round of tariffs on China.

“We have a long way to go as far as tariffs, where China is concerned, if we want. We have another $325 billion that we can put a tariff on if we want,” Trump stated at a Cabinet meeting in the White House. Wall Street was not happy with the president’s tough rhetoric and stocks slumped on the news.

However, Treasury Secretary Steven Mnuchin said yesterday that trade talks between the U.S. and China are moving forward, providing a glimmer of hope for investors who are praying that the tariff battle will end. As of this writing on Friday morning, the three main U.S. stock indices were trading higher.

How to invest now…

Let’s turn to the central question: where to place your money for the rest of 2019.

You should rotate toward sectors that perform well during the late-stage of an economic recovery — e.g., utilities, real estate, consumer staples, and energy.

One of the best defensive measures you can take now is to make sure your portfolio is diversified. Sounds like Money Management 101, right? Well, like a lot of rules that make obvious sense, this one often gets ignored.

Despite the compelling case to diversify, many investors hold portfolios with assets concentrated in relatively few holdings. This common failure has its roots in complacency, lack of knowledge, and just plain laziness.

When your investments are spread across different asset classes and types of securities, they work in concert to help reduce risk.

Never, ever put your investment nest egg in just one place. Diversify your portfolio among stocks, bonds, cash and precious metals. Spread your investments geographically, among developed and developing countries.

Don’t make your portfolio hostage to daily headlines. Cable news thrives on drama to boost ratings. In today’s choppy seas, you can navigate a steady course by focusing on earnings reports and economic data. On those two fronts, as I’ve just explained, the news calls for caution (but not excessive fear).

Read This Story: Your Next Moves in This Mixed-Bag Market

In terms of earnings, the markets got one piece of unalloyed good news: Microsoft (NSDQ: MSFT) blew away quarterly earnings expectations, perhaps foreshadowing earnings beats from other large-cap firms.

Microsoft yesterday reported fiscal fourth-quarter profits of $13.1 billion, or EPS of $1.71, up from $8.87 billion, or EPS of $1.14, a year ago. That represents a whopping year-over-year gain of 50% in profits.

Revenue came in at $33.7 billion, up from $30 billion in the year-ago quarter. Analysts surveyed by FactSet had forecast EPS of $1.21 on revenue of $32.7 billion. Cloud revenue was a key growth driver.

Since taking the helm in 2014, Microsoft CEO Satya Nadella has transformed Microsoft from a stagnant software sales company into a Software-as-a-Service (SaaS) juggernaut. Companies with talented management and strong fundamentals are your best bets. And that’s a fact.

Questions or feedback? Drop me a line: mailbag@investingdaily.com

John Persinos is the managing editor of Investing Daily.