With higher beta, cyclical sectors leading U.S. equity markets higher this year, some defensive sectors are lagging. That is the case with consumer staples. The Consumer Staples Select SPDR (NYSEArca: XLP), the largest consumer staples ETF, is up just 5% year-to-date compared to a gain of 14% for the S&P 500.

Amid fears of rising interest rates and concerns that the sector is overvalued even relative to its lofty historical norms, the consumer staples sector has recently encountered some headwinds.

Defensive sectors often trade at premium valuations relative to the broader market and that is certainly the case at the moment with the consumer staples and utilities groups. Add to that, some technical analysts believe XLP, the bellwether staples ETF, is close to encountering technical difficulties.

“With the stock market rally hitting on just about all cylinders at the moment, consumer staples is one of the few areas that has not participated,” according to ETF Daily News. “Based on our approach of investing in the relative strength in the market, that would necessarily disqualify XLP. However, taking another view, it is also one of the few places in the market that is not substantially extended currently. If the trendline can hold again (potential Fibonacci support also lies just below ~52.78), this may be one of the few favorable risk/reward opportunities in the immediate-term.”

Related: Lower Downside Risk with a Customer Satisfaction ETF Strategy

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