“As shown below, the sector’s relative performance to the broad market has moved in the opposite direction of long-term yields,” said State Street. “Since December 2007, the Consumer Staples sector outperformed the broad market by 0.95% on a monthly average two-thirds of the time when yields on the 10-year Treasury fell.”
The sector also displays quality characteristics. Valuing high quality value is particularly important as bull markets enter their waning stages, as some market observers believe the current bull market is doing. In the early stages of bull markets, lower quality companies see their shares soar. However, as the bull matures, investors often exhibit a preference for higher quality fare with more compelling valuations.
“The Consumer Staples sector has historically shown quality traits, such as higher return on equity and sufficient free-cash-flow-to-debt ratio. With less elastic products, Consumer Staples companies are more capable of passing on increasing input costs to consumers to maintain stable margins or navigate a slowdown in economic growth,” according to State Street.
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