Consumer Staples ETF: Playing Defense with Sectors

Consumer Staples Select Sector SPDR (NYSEArca: XLP) had been outperforming since mid-April as investors scrambled to add risk, but now that trend could be reversing as investors pump the brakes a bit.

The S&P 500 has traded in a more volatile range recently, rattling some investor nerves which in turn should result in a defensive rotation, says Tarquin Coe, technical analyst at Investors Intelligence.

“That rotation is already becoming apparent in the charts for the SPDR Consumer Staples (XLP) ETF,” he wrote in a newsletter Monday.

“The relative chart of the XLP versus the S&P 500 has defeated a downtrend channel off the April high and is now rallying, with decent performance today,” Coe added. “The price is bouncing from support at the 50-day exponential moving average (EMA) and should extend up to at least the high from May at $42.20.”

A rotation to noncyclical sectors such as consumer staples and utilities can be a sign that investors are lightening up on risk. [Utilities, Consumer Staples ETFs in the Doghouse in May]

XLP offers exposure to mega-cap household names whose products consumers generally continue to buy regardless of the economic climate, and could also be viewed as a defensive portfolio tilt, says Morningstar analyst Robert Goldsborough.

“Companies held in this fund generally have stable revenue growth and cash flows,” the analyst said in a profile of the ETF.

Consumer Staples Select Sector SPDR

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