Consumer Staples Stocks Prove That the ‘Strong Consumer’ Is Just a Myth

Consumer staples stocks are the latest equities on Wall Street to flash a warning signal. Consumer staples is the “need” sector of the stock market, with companies involved in the production or distribution of essential goods and services that consumers are either unable or unwilling to cut from their budgets. This includes manufacturers and distributors of food, beverages, tobacco, and household items, as well as personal products and certain retailing operations.

Typically, these stocks have stable earnings, consistent dividend payouts, and less sensitivity to economic cycles compared to other sectors. As such, they are often seen as defensive investments. They provide investors with a potential hedge against economic downturns. Companies like Procter & Gamble (NYSE:PG), Coca-Cola (NYSE:KO), and Walmart (NYSE:WMT) are quintessential examples within this sector, offering products and services that remain in steady demand.

Consumer staples has a very different sector profile than consumer discretionary. The consumer discretionary sector is the “want” sector. The sector includes businesses that tend to be highly sensitive to economic cycles. This sector includes a wide range of industries such as automotive, household durable goods, apparel, hotels, restaurants, leisure facilities, and services. Luxury goods, high-end retailing, and consumer electronics also fall under this category.

Stocks in this sector, such as Amazon (NASDAQ:AMZN), Nike (NYSE:NKE), and Starbucks (NASDAQ:SBUX), often have higher volatility. They can provide substantial growth opportunities during economic expansions, as consumers are more likely to make discretionary purchases. However, they can also face significant pullbacks during economic downturns as consumers cut back. The performance of these stocks is closely tied to consumer confidence and disposable income levels, making them a dynamic yet potentially rewarding component of an investment portfolio.

So why in the world are defensive consumer staples stocks OUTPERFORMING offensive consumer discretionary stocks right now?

Consumer Staples relative to Consumer Discretionary has been outperforming since the start of the year.

Yes.

The bears are in control.

Most money is long-only.

If you're bearish and must be in equities, you do so with trades like this. pic.twitter.com/bIONMkTNU9
— Michael A. Gayed, CFA (@leadlagreport) May 10, 2024

Notice how the price ratio spiked in 20020 and 2022? When there was a crash and a bear market, respectively? Ask yourself why this sector, like utilities, is quietly outperforming. The answer is that bears are in control.

On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

The Lead-Lag Report is provided by Lead-Lag Publishing, LLC. All opinions and views mentioned in this report constitute our judgments as of the date of writing and are subject to change at any time. Information within this material is not intended to be used as a primary basis for investment decisions and should also not be construed as advice meeting the particular investment needs of any individual investor. Trading signals produced by the Lead-Lag Report are independent of other services provided by Lead-Lag Publishing, LLC or its affiliates, and positioning of accounts under their management may differ. Please remember that investing involves risk, including loss of principal, and past performance may not be indicative of future results. Lead-Lag Publishing, LLC, its members, officers, directors and employees expressly disclaim all liability in respect to actions taken based on any or all of the information in this writing.

Subscriber Sign in