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