The Consumer Staples Select Sector SPDR ETF (NYSEArca: XLP), the largest exchange traded fund tracking the consumer staples sector, and rival cap-weighted staples ETFs traded slightly higher Thursday on the back of some good news for one of the sector’s marquee names.

Dow component Procter & Gamble (NYSE: PG), the largest household products maker, traded higher by more than 2% as of midday Thursday and was flirting with all-time highs after BofA-Merrill Lynch upgraded the stock to Buy from Neutral. The upgrade comes barely more than a month after the bank reiterated a Neutral rating on Procter & Gamble.

“The brokerage firm also lifted its PG price target to $108 from $95 — a 14% premium to last night’s close at $94.03 — with the analyst in coverage waxing optimistically over the company’s consistent sales strength, and believes the momentum will continue in early 2019,” reports Schaeffer’s Investment Research.

Why It’s Important

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.

Strength in Procter & Gamble is important for XLP and rival cap-weighted staples ETFs for a simple reason: the stock is usually the largest holding in those funds. In the case of XLP, that ETF had a weight of 13.83% to Procter & Gamble heading into Thursday, or 270 basis points above its weight to Coca-Cola Co. (NYSE: KO), XLP’s second-largest holding.

“The Dow stock has been on a tear since its May 2 bottom near $70, adding 33% and nabbing a Dec. 4 record high of $94.86. While the stock has lost some steam since then, its short-lived pullback was contained by its 30-day moving average, a trendline that helped usher the shares higher in the third quarter,” according to Schaeffer’s.

XLP provides “exposure to companies from the food and staples retailing, beverage, food product, tobacco, household product and personal product industries in the U.S.,” according to State Street.

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