Fourth-quarter earnings season is drawing to a close, but one sector still has a slew of companies left to report. Next week, over a quarter of the members of Consumer Staples Select Sector Index (IXRTR) reports earnings.
For risk-tolerant trades, those upcoming consumer staples earnings updates could bring opportunities with the newly minted Direxion Daily Consumer Staples Bull 3X ETF (NYSEArca: NEED) and the Direxion Daily Consumer Discretionary Bull 3X ETF (NYSEArca: WANT).
NEED and LACK debuted last November. The bullish NEED looks to deliver triple the daily returns of the Consumer Staples Select Sector Index while the bearish LACK attempts to deliver triple the daily inverse returns of that index.
That 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,” according to Direxion.
Rough Start
Amid increased risk appetite, the defensive consumer staples sector is off to a slow start this year.
January’s consumer staples performance is sharp contrast from late last year when some found relative safety in this sector, which is typically popular during periods of volatility since investors would usually rely on consumer staples’ dividend yields and the steady nature of their businesses to offset the broader volatility. Since consumers will typically need to buy the products that staples firms provide regardless of market or economic conditions, investors tend to view the sector as a haven or defensive play.
Still, the sector could offer opportunity for defensive investors and traders as 2019 moves along.
With the business cycle potentially slowing this 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.
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.
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