Capitalize on Pre-Election Market Uncertainty with Consumer Staples

There’s a lot of uncertainty getting thrown around in the capital markets right now with a forthcoming U.S. presidential election and the world still in throes of the Covid-19 pandemic. For fidgety investors wanting a safe haven, it might not be a matter of want, but need–as in the needs provided by consumer staples.

There are, of course, asset classes that can provide the proverbial safe haven during times of uncertainty like precious metals or bonds. However, this doesn’t mean investors should avoid equities completely with options like consumer staples.

“The same logic that explained why avoiding large losses is key to long-term investing success can also explain the importance of the consumer staples sector during times of turbulence,” a Money & Markets article said. “Consumer staples are the goods and services that people use daily, such as food and clothing. And these stocks tend to suffer milder drawdowns during bear markets, relative to the broader market and other sectors that are more dependent on high economic growth and bullish sentiment.”

With consumer staples, investors can rely on a sector that can move with the peaks and valleys of the market. In other words, products that people want regardless of what the market or economy are doing.

“Realizing that you’ll be investing through multiple economic and market cycles — that is, through bull markets and bear markets — it’s not enough to buy a sector that only can lead when times are good,” the article said. “Chances are, those stocks will also lead you toward a steeper loss during the bad times. One simple way to gain exposure to the defensive consumer staples sector is through the SPDR Consumer Staples Sector ETF (XLP).”

XLP Chart

In addition to XLP, traders sensing an opportunity and “need” to have a dose of leverage can look to the eponymous “NEED”–the Direxion Daily Consumer Staples Bull 3XShrs (NEED). NEED seeks daily investment results, before fees and expenses, of 300% of the daily performance of the Consumer Staples Select Sector Index.

The fund normally invests at least 80% of its net assets in financial instruments and securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index. The index includes domestic companies from the consumer staples sector which includes the following industries: food and staples retailing; household products; food products; beverages; tobacco; and personal products.

For more market trends, visit ETF Trends.