Through the first half of 2018, the consumer staples sector and the corresponding exchange traded funds were punished due in large part to the strong dollar. Although the dollar has been mostly steady since then, staples stocks and ETFs are rebounding.
The Consumer Staples Select Sector SPDR ETF (NYSEArca: XLP), the largest exchange traded fund tracking the consumer staples sector, has surged 15% off its 52-week low seen earlier this year and is close to making a new 52-week high.
Investors typically shift into consumer staples during bouts of market volatility because of the sector’s relatively generous dividend payouts and the slow-and-steady nature of the consumer staples business – consumers usually continue purchase basic products that staples firms sell regardless of market or economic conditions. Consequently, investors view the staples sector as a relative haven in the equities market that may help somewhat insulate a portfolio from risks like rising interest rates and increasingly restrictive trade policies under the Trump Administration.
“Stocks like McCormick, Hormel Foods, Church & Dwight and Clorox have bucked the market sell-off over the past three months to notch records in November,” reports CNBC. “Erin Gibbs, portfolio manager at S&P Global Market Intelligence, expects the trend to continue.”
Looking Ahead in Consumer Staples
With the business cycle potentially slowing next year, defensive sectors could be embraced by investors. Consumer staples, health care and industrial sectors typically outperform during the so-called slowdown period of a business cycle when economic growth starts decelerating but remains positive, the economy runs beyond its full capacity and monetary policy becomes restrictive.
Some market observers believe the sector could be poised to cool off over the near-term. Some analysts believe the group’s comeback is the reveals investors’ willingness to pay a premium for protection against unexpected pullbacks during a times of greater uncertainty, the Wall Street Journal reports.