Sticking With Staples in a Volatile Market | ETF Trends

The combination of elevated market volatility and shoppers’ increased purchases of cleaning suppliers, disinfectants, hand sanitizer, and related goods is boosting consumer staples stocks and ETFs, such as the Consumer Staples Select SPDR (NYSEArca: XLP).

XLP seeks to provide investment results that correspond generally to the price and yield performance of publicly traded equity securities of companies in the Consumer Staples Select Sector Index that includes securities of companies from the following industries: food and staples retailing; household products; food products; beverages; tobacco; and personal products.

With shoppers (and investors) embracing the likes of Walmart, Clorox and Proctor and Gamble, among others, XLP has become something of an investment antidote in the face of the coronavirus outbreak.

“Constant media coverage of COVID-19 has sent consumers en masse on shopping trips to stock up on food, household essentials, and personal care products to prepare for extended periods at home,” said Matthew Bartolini, head of SPDR Americas Research in a recent note. “These actions could benefit the revenue growth of the Consumer Staples sector this year, as well as potentially drive positive earnings surprises in the coming quarters.”

Staples Shine

Staples are extending a run of being sturdy amid the COVID-19 outbreak as the public seeks refuge within their homes, amid a haven of Clorox bleach, Coca-cola, and toilet paper. These are goods that will continue to be necessary regardless of the landscape, and some states are even mandating that stores remain open to sell them.

Historical data prove staples are a good place to hide out during bear markets.

“The defensive qualities of the Consumer Staples sector have helped it outperform the S&P 500® Index during equity market selloffs,” said Bartolini. “The S&P 500 Consumer Staples Index has outpaced the broad market by an average of 13.8% during every bear market since 1990.”

The consumer staples segment has long been viewed as a high-quality and defensive play. The slow and steady nature of the consumer staples business has long been touted as a safe play for all periods since consumers will still need to buy the basic necessities.

“According to our analysis of sector performance over business cycles, Consumer Staples stocks outperformed the broader market an average of 14% during six of seven recession periods, and 4% during eight of 11 economic slowdowns,” according to Bartolini.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.