However, during any economic condition, people will still need basic goods or consumer staples, like food, beverages, tobacco and other household items, that many are unwilling to live without regardless of financial hardship.
The Consumer Staples Select Sector SPDR (NYSEArca: XLP) has gained 18.2% year-to-date.
Top holdings include Procter & Gamble 14.1%, Coca-Cola 10.1%, Philip Morris 9.3%, Wal-Mart Stores 8.1% and CVS Caremark. Top sectors include Food & Staples Retailing 24.0%, Household Products 21.0%, Beverages 19.9%, Food Products 17.1% and Tobacco 16.0%.
“Staples companies typically deal with narrow margins, which can make it difficult to rapidly increase profitability and thus support swift growth in stock prices,” writes Brad Sorensen, Director of market Sector Analysis, Schwab Center for Financial research. “So while staples have done well since the beginning of the year, we think their recent positive run probably has a limited time horizon.”
Moreover, uring times of improving economic growth, defensive, non-cyclical sectors like consumer staples typically fall out of favor as more investors take on riskier cyclical stocks. [Consumer Staples ETFs Losing Defensive Allure]
“Staples stocks may have been driven up by investors who’d been out of the market for some time and tip-toed back in by starting with more defensive areas,” Sorensen added. “If this is the case, then investment money may move toward cyclical sectors as investor confidence improves.”
For more information on consumer stocks, visit our consumer staples or consumer discretionary category.
Max Chen contributed to this article.